SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|
|
|
þ
|
|
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the Fiscal Year Ended August 28, 2011
|
|
|
o
|
|
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
to
Commission File No.
000-00619
WSI Industries, Inc.
(Exact name of registrant specified in its charter)
|
|
|
Minnesota
|
|
41-0691607
|
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
213 Chelsea Road, Monticello, Minnesota 55362
(Address of principal executive offices)(Zip code)
Issuers telephone number, including area code: (763) 295-9202
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.10 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
Yes
o
No
þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Exchange Act.
Yes
o
No
þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports); and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such filed). Yes
o
No
o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definition of accelerated
filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange
Act. (Check one)
|
|
|
|
|
|
|
Large accelerated filer
o
|
|
Accelerated filer
o
|
|
Non-accelerated filer
o
|
|
Smaller reporting company
þ
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
o
No
þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the
registrant on February 25, 2011 (the business day immediately prior to the end of the registrants
second fiscal quarter) was $13,816,000 based upon the closing sale price on that date of $4.82 as
reported by The NASDAQ Capital Market.
The number of shares of the registrants common stock, $0.10 par value, outstanding as of
November 11, 2011 was 2,895,664.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the Companys Annual Meeting of Shareholders to be held on
January 4, 2012, which will be filed within 120 days after the end of the fiscal year covered by
this report, are incorporated by reference into Part III of this
Form 10-K.
TABLE OF CONTENTS
PART I
|
|
|
Item 1.
|
|
Description of Business.
|
WSI Industries, Inc. (the Company) makes its periodic and current reports available free of
charge as soon as reasonably practicable after such material is electronically filed with, or
furnished to, the Securities and Exchange Commission. These reports can be obtained by contacting
the Company through its website at
www.wsiindustries.com
.
Overview
The Company was incorporated in Minnesota in 1950 for the purpose of performing precision contract
machining for the aerospace, communication, and industrial markets. The major portions of Company
revenues are derived from machining work for the aerospace/avionics/defense industries,
recreational vehicles (ATV and motorcycle) markets, energy industry and bioscience industry.
Contract manufacturing constitutes the Companys entire business.
Products and Services
The Company manufactures metal components in medium to high volumes requiring tolerances as close
as one ten-thousandth (.0001) of an inch. These components are manufactured in accordance with
customer specifications using materials both purchased by the Company as well as being supplied by
our customer.
Sales and Marketing
In fiscal 2009, all areas of the Companys business were affected by the national recession and we
experienced decreases in sales of 27% versus fiscal 2008. Fiscal 2010 sales were flat as compared
to fiscal 2009 as a decrease in the energy business was equally offset by increases in sales in all
of the other industries served by the Company. In fiscal 2011, the Company experienced an
increase in sales of 33% over the prior year. The sales increase came in large part from increases
in the Companys recreational vehicle market which increased 39% over the prior year. In fiscal
2011, the Company also realized a 27% increase in its sales to the energy industry. Sales to the
recreational vehicle market totaled approximately 68%, 65% and 54% of total sales in fiscal 2011,
2010 and 2009, respectively. Sales to the energy industry totaled approximately 23%, 24% and 36%
of sales in fiscal 2011, 2010 and 2009, respectively. Sales to the aerospace/avionics/defense
markets totaled approximately 8%, 9% and 8% of total sales in fiscal 2011, 2010 and 2009,
respectively. Sales to the bioscience industry amounted to approximately 1% of total sales in
fiscal 2011 and 2% of total sales in fiscal 2010 and 2009.
The Company has a reputation as a dependable supplier capable of meeting stringent specifications
to produce quality components at high production rates. The Company has demonstrated an ability to
develop sophisticated manufacturing processes and controls essential to produce precision and
reliability in its products.
Customers
Sales were made to Polaris Industries, Inc. and related entities in the amount of $16,804,000, or
67% of total Company revenues, in fiscal 2011. The Company also made sales of $4,525,000 or 18% of
total Company revenues in fiscal 2011 to National Oilwell Varco.
2
Competition
Although there are a large number of companies engaged in machining, the Company believes the
number of entities with the technical capability and capacity for producing products of the class
and in the volumes manufactured by the Company is relatively small. Competition is primarily based
on product quality, service, timely delivery, and price.
Research and Development; Intellectual Property
No material amount has been spent on company-sponsored research and development activities.
Patents and trademarks are not deemed significant to the Company.
Employees
At August 28, 2011, the Company had 76 full-time employees, none of whom were subject to a union
contract. We consider our relationship with our employees to be good.
Foreign and Domestic Operations and Export Sales
The Company has no operations or any significant sales in any foreign country.
In evaluating us as a company, careful consideration should be given to the following risk
factors, in addition to the other information included in this Annual Report on Form 10-K. Each of
these risk factors could adversely affect our business, operating results and/or financial
condition, as well as adversely affect the value of an investment in our common stock. In addition
to the following disclosures, please refer to the other information contained in this report,
including our consolidated financial statements and the related notes.
The economic conditions in the United States and around the world could adversely affect our
financial results.
Demand for our services depends upon worldwide economic conditions, including
but not limited to overall economic growth rates, consumer spending, financing availability,
employment rates, interest rates, inflation, consumer confidence, and the profits, capital
spending, and liquidity of large OEMs that we serve. The economic recession in the markets we serve
has caused and could continue to cause our OEM customers to reduce ordering levels, resulting in
reschedules, program delays or cancelled orders of our services having an adverse effect on our
business and our financial results.
We operate in the highly competitive and fragmented contract machining industry.
We compete
against many contract machining companies. We also compete with OEM in-house operations that are
continually evaluating manufacturing products internally against the advantages of outsourcing. We
may also be at a competitive disadvantage with respect to price when compared to manufacturers with
excess capacity, lower cost structures and availability of lower cost labor. The availability of
excess manufacturing capacity of our competitors also creates competitive pressure on price and
winning new business. To respond to competitive pressures, we may be required to reduce our prices
to customers or increase discounts to customers, which would result in lower gross profit margins
and decreased revenue. These factors also impact the Companys ability to obtain additional
manufacturing programs and retain our current programs.
Controlling manufacturing costs is a significant factor in operating results.
The Companys
ability to manage its costs on existing manufacturing programs and its ability to curtail costs and
expenses on potential new manufacturing programs could have a significant impact on the Companys
operating results.
3
A large percentage of our sales have been made to a small number of customers in a small
number of highly competitive industries, and the loss of a major customer would adversely affect
us.
In fiscal years 2011, 2010 and 2009, one customer in the recreational vehicle market accounted
for 67%, 63% and 51% of our revenue, respectively. In addition, in fiscal years 2011, 2010 and
2009, one customer in the energy industry accounted for 18%, 24% and 30% of our revenue,
respectively. If there is a loss of one or more of these major customers or a significant decline
in sales to either of these major customers it could have an adverse effect on our results from
operations.
Operating results may vary significantly from period to period.
We can experience significant
fluctuations in our revenue and operating results. One of the principal factors that contribute to
these fluctuations is the significant changes in our customers delivery requirements. Results of
operations in any period, therefore, should not be considered indicative of the results to be
expected for any future period. Significant fluctuations in our revenue and operating results
could also impact the Companys ability to comply with its debt covenants of its credit facilities.
Internal control over financial reporting may not prevent or detect misstatements because of
its inherent limitations.
We require effective internal control over financial reporting in order
to provide reasonable assurance with respect to our financial reports and to effectively prevent
fraud. Internal control over financial reporting may not prevent or detect misstatements because of
its inherent limitations, including the circumvention or overriding of controls, or fraud.
Additionally, as of August 28, 2011, our management has concluded that our internal control over
financial reporting was not effective due to a material weakness in the areas of segregation of
duties and adequacy of personnel resulting from a staff reduction in the quarter ended May 31,
2009. Because of this material weakness in internal control over financial reporting, we may be
more susceptible to misstatements in our financial statements or incidences of fraud. However, even
effective internal controls can provide only reasonable and not absolute assurances with respect to
the preparation and fair presentation of financial statements.
The market price of our common stock
has fluctuated significantly in the past and may continue in the future.
The market price of our
common stock has been volatile in the past and several factors could cause the price to fluctuate
substantially in the future. These factors include quarterly fluctuations in our financial results,
customer contract awards, and general economic and political conditions in our various markets. In
addition, the stock prices of small public contract manufacturing companies have experienced
significant price and volume fluctuations that often have been unrelated to the operating
performance of such companies. This market volatility may adversely affect the market price of our
common stock.
Complying with securities laws and regulations is costly for us.
Changing laws, regulations
and standards relating to corporate governance and public disclosure, including regulations
promulgated by the SEC and Nasdaq, are creating particular challenges for smaller publicly-held
companies like us. We are committed to maintaining high standards of corporate governance and
public disclosure. As a result, our efforts to comply with evolving laws, regulations and standards
have resulted in, and are likely to continue to result in, increased general and administrative
expenses and a diversion of management time and attention from revenue-generating activities to
compliance activities. In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley
Act of 2002 and the related regulations regarding our assessment of our internal control over
financial reporting have required, and will continue to require, the expenditure of significant
financial and managerial resources. In addition to Sarbanes-Oxley, we will also be required to
expend financial and managerial resources to comply with the SEC requirement that mandates that our
quarterly and yearly filings with them be in an XBRL readable format.
|
|
|
Item 1B.
|
|
Unresolved Staff Comments.
|
Not applicable.
4
The Company purchased an existing 49,000 square foot facility located in Monticello, Minnesota in
May 2004 to house its production and its headquarters. The purchase price was $1.9 million and was
paid for by a combination of cash and debt. The Company entered into two notes evidencing the debt
used to purchase its Monticello facility that were secured by mortgages. The first note and
mortgage was to Excel Bank Minnesota (now M&I Marshall and IIsley Bank) for $1,360,000 that matures
on May 1, 2014. Effective May 3, 2009 the interest rate adjusted to a rate 2.5% above the monthly
yield on United States Treasury five-year securities. The interest rate at August 28, 2011 is 4.38%
with monthly payments of $7,637 based on a 25-year amortization schedule. The note is secured by a
mortgage and security interest in all assets of the Company.
The Company also entered into a note and mortgage with the City of Monticello, Minnesota Economic
Development Authority (MEDA). The MEDA mortgage was subordinated to the mortgage of Excel Bank
Minnesota. The note to MEDA carried an interest rate of 2% and required monthly principal and
interest payments of $1,483 based on a 25-year amortization schedule. Effective May 1, 2009, the
Company amended the note to extend the maturity date to May 1, 2011, at which time the entire
balance was paid in full.
In fiscal 2008, the Company commenced an addition to its facility to add manufacturing space. Upon
completion in early fiscal 2009, the addition added 12,500 square feet of manufacturing space. In
August 2008, the Company obtained a loan from M&I Marshall and IIsley Bank to finance this
addition. The loan was secured by certain assets of the Company and guarantees by the Companys
subsidiaries. The Company was able to draw upon the loan on a non-revolving basis through May 31,
2009 in an aggregate amount not to exceed $1,200,000. The loan required monthly payments of
interest only at the banks prime rate plus 0.50%. The loan became due and was paid in full on
June 30, 2010.
The Company considers its manufacturing equipment, facilities, and other physical properties to be
suitable and adequate to meet the requirements of its business.
|
|
|
Item 3.
|
|
Legal Proceedings.
|
The Company is not a party to any material legal proceedings; we may be subject from time to time
ordinary routine litigation incidental to its business.
|
|
|
Item 4.
|
|
[Removed and Reserved.]
|
5
PART II
|
|
|
Item 5.
|
|
Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
|
The common stock of the Company is traded on The NASDAQ Capital Market of the NASDAQ Stock Market,
Inc. under the symbol WSCI.
As of November 7, 2011 there were 360 shareholders of record of the Companys common stock.
|
The following table sets forth, for the periods indicated, the high and low closing sales price
information for our common stock as reported by the Nasdaq Capital Market.
|
|
|
|
|
|
|
|
|
|
|
Stock Price
|
|
|
|
High
|
|
|
Low
|
|
|
|
FISCAL 2011:
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
7.41
|
|
|
$
|
3.43
|
|
Second quarter
|
|
|
6.57
|
|
|
|
4.50
|
|
Third quarter
|
|
|
5.23
|
|
|
|
4.42
|
|
Fourth quarter
|
|
|
7.42
|
|
|
|
4.82
|
|
|
|
|
|
|
|
|
|
|
FISCAL 2010:
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
3.22
|
|
|
$
|
2.12
|
|
Second quarter
|
|
|
2.20
|
|
|
|
1.74
|
|
Third quarter
|
|
|
2.52
|
|
|
|
1.80
|
|
Fourth quarter
|
|
|
4.41
|
|
|
|
1.98
|
|
In fiscal year 2010, the Company did not pay a quarterly dividend during the fiscal year. In
fiscal 2011, the Company paid a quarterly cash dividend of $.04 per share in each quarter. The
Company expects to continue its quarterly dividend program, subject to its financial performance.
6
The following table sets forth information regarding our equity compensation plans in effect as of
August 28, 2011. Each of our equity compensation plans is an employee benefit plan as defined by
Rule 405 of Regulation C of the Securities Act of 1933.
Equity Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares of
|
|
|
|
Number of shares of
|
|
|
|
|
|
|
common stock remaining
|
|
|
|
common stock to be
|
|
|
Weighted-average
|
|
|
available for future issuance
|
|
|
|
issued upon exercise of
|
|
|
exercise price of
|
|
|
under equity compensation
|
|
|
|
outstanding options,
|
|
|
outstanding options,
|
|
|
plans (excluding securities
|
|
Plan category
|
|
warrants and rights
|
|
|
warrants and rights
|
|
|
reflected in the first column)
|
|
Equity compensation
plans approved by
shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Stock Plan
|
|
|
248,166
|
|
|
$
|
4.16
|
|
|
|
226,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
248,166
|
|
|
$
|
4.16
|
|
|
|
226,220
|
|
|
|
|
|
|
|
|
|
|
|
There are no outstanding equity compensation plans not approved by shareholders.
The Company made no repurchases of its common stock in fiscal year 2011.
7
|
|
|
Item 6.
|
|
Selected Financial Data
|
Not applicable.
|
|
|
Item 7.
|
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
Critical Accounting Policies and Estimates:
Managements Discussion and Analysis of Financial Condition and Results of Operations discuss our
consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these financial statements
requires management to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.
We base our estimates on historical experience and on various other assumptions that we believe are
reasonable under the circumstances, the result of which forms the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources.
Results may differ from these estimates due to actual outcomes being different from those on which
we based our assumptions. The estimates and judgments utilized are reviewed by management on an
ongoing basis and by the audit committee of our board of directors at the end of each quarter prior
to the public release of our financial results. We made no significant changes to our critical
accounting policies during fiscal 2011.
Application of Critical Accounting Policies:
Excess and Obsolete Inventory:
Inventories, which are composed of raw materials, work in process and finished goods, are valued at
the lower of cost or market by comparing the cost of each item in inventory to its most recent
sales price or sales order price. Inventory cost is adjusted down for any excess cost over net
realizable value of inventory components.
In addition, the Company determines whether its inventory is obsolete by analyzing the sales
history of its inventory, sales orders on hand and indications from the Companys customers as to
the future of various parts or programs. If, in the Companys determination, the inventory value
has become impaired, the Company adjusts the inventory value to the amount the Company estimates as
the ultimate net realizable value for that inventory. Actual customer requirements in any future
periods are inherently uncertain and thus may differ from our estimates. The Company performs its
lower of cost or market testing, as well as its excess or obsolete inventory analyses, quarterly.
The Company has no specific timeline to dispose of its remaining obsolete inventory and intends to
sell this obsolete inventory from time to time, as market conditions allow.
Goodwill Impairment:
The Company evaluates the valuation of its goodwill according to the provisions of Accounting
Standards Codification (ASC) 350 to determine if the current value of goodwill has been impaired.
The Company believes that its stock price is not necessarily an indicator of the Companys value
given its limited trading volume and its wide price fluctuations. The Company has also adopted
Accounting Standard Update (ASU) No. 2011-08,
IntangiblesGoodwill and Other (Topic 350).
With
ASU No. 2011-08, an entity is given the option to make a qualitative evaluation of goodwill
impairment to determine whether it should calculate the fair value of its reporting unit. In the
fiscal 2011 fourth quarter, the Company made its qualitative evaluation of its goodwill
considering, among other things, the overall macroeconomic conditions, industry and market
considerations, overall financial performance and other relevant company specific events. Based on
this qualitative evaluation, the Company concluded that it was more likely than not that its
goodwill was not impaired and that it wasnt required to calculate the fair value of its reporting
unit. If the Company has changes in events or circumstances, including reductions in anticipated
cash flows generated by its operations, goodwill could become impaired which would result in a
charge to earnings.
8
Deferred Taxes:
The Company accounts for income taxes using the liability method. Deferred income taxes are
provided for temporary differences between the financial reporting and tax bases of assets and
liabilities. A deferred tax valuation allowance is set up should the realization of any deferred
taxes become less likely than not to occur. The valuation allowance is analyzed periodically by
the Company and may result in income tax expense being different than statutory rates. The Company
has not established a valuation allowance as it believes it is more likely than not that it will
fully realize the benefit of its tax assets. Currently, the Companys deferred tax assets have two
major components which relate to the Companys net operating loss (NOL) and the Companys
alternative minimum tax (AMT) tax credit carryforwards. The Companys AMT tax credit carryforward
does not expire. The Companys NOL carryforward is approximately $2.1 million expiring in 2021 -
2029. The Company believes that given the extended time period for the NOL carryforward to expire
as well as a return to a more normal growth rate experienced prior to the economic recession of
fiscal 2009, that the Company is more likely than not to fully utilize its NOL carryforward before
it expires. However, a significant loss of a customer or a change in the Companys business could
affect the realization of the deferred tax assets. If a major program were discontinued, the
Company would immediately assess the impact of the loss of the program on the realization of the
deferred tax assets.
Revenue Recognition:
The Company considers its revenue recognition policy to fall under the guidance of FASBs
conceptual framework for revenue recognition. The Company recognizes revenue only after: (a) The
Company has received a purchase order identifying price and delivery terms or services to be
rendered; (b) shipment has occurred, or in the case of services, after the service has been
completed; (c) the Companys price is fixed as evidenced by the purchase order; and (d)
collectability is reasonably assured. The Company continually monitors its accounts receivable for
any delinquent or slow paying accounts. The Company believes that based upon its past history with
minimal bad debt write-offs, that all accounts are collectible upon shipment or delivery of
services. Credit losses from customers have been minimal and within managements expectations.
Based on managements evaluation of uncollected accounts receivable, bad debts are provided for on
the allowance method. Accounts are considered delinquent if they are 120 days past due. If an
uncollectible account should arise during the year, it would be written-off at the point it was
determined to be uncollectible. The Company mitigates its credit risk by performing periodic
credit checks and actively pursuing past due accounts. The Company refers to net sales in its
consolidated statements of operations as the Companys sales are sometimes reduced by product
returned by its customers.
Liquidity and Capital Resources:
The Companys net working capital at the end of fiscal 2011 was $5,283,000 as compared to
$4,438,000 at the end of fiscal 2010. The increase occurred primarily from increases in cash and
accounts receivable and a decrease in current maturities of long-term debt. The ratio of current
assets to current liabilities increased to 2.54 to 1.0 at August 28, 2011 from 2.30 to 1.0 at the
end of the prior fiscal year. The Company generated $2,690,000, $1,634,000 and $1,767,000 in cash
from operations in fiscal 2011, 2010 and 2009, respectively.
In fiscal 2011 and 2009, additions to property, plant and equipment either by cash or capitalized
lease were $1,743,000 and $1,341,000, respectively. These amounts included $1,280,000 and $919,000
of machinery acquired through capital leases in fiscal 2011 and 2009, respectively. In fiscal
2010, the Company had minimal additions to property, plant and equipment, capitalizing $61,000
during the year.
9
In its fiscal 2011 first quarter, the Company added two machining centers, one of which was
purchased to supplement capacity in its energy business while the other machine was bought
primarily for replacement purposes. In the Companys second and fourth quarters, the Company added
two more machining centers for new programs obtained in its energy business. In its fiscal 2009
first quarter, the Company added one machining center for its energy business. Also in fiscal
2009, the Company completed its building addition and capitalized $267,000 in cost in addition to
amounts capitalized in fiscal 2008.
On February 1, 2011, the Company renewed its revolving line of credit agreement with its bank.
Under the agreement, the Company can borrow up to $1 million. The agreement expires on February 1,
2012. No balances were owed at August 28, 2011 and August 29, 2010, and no advances were made on
the credit line during either fiscal 2011 or 2010.
In August 2008, the Company entered into an agreement with its bank to finance a building addition
to its existing manufacturing facility. The Company was able to draw upon the loan on a
non-revolving basis through May 31, 2009 in an aggregate amount not to exceed $1.2 million. The
loan required monthly payments of interest only at the banks prime rate plus 0.50%. The loan
matured on, and was paid in full on June 30, 2010.
The Companys total debt was $4,925,000 at August 28, 2011 which consisted of a mortgage on its
building of $1,124,000 and capital lease obligations secured by production equipment of $3,801,000.
Current maturities of long-term debt consist of $947,000 due on capital leases and $42,000 on its
building related debt. During fiscal 2011, the Company made principal payments on its debt of $1.3
million. It is managements belief that the combination of its current cash balance, its
internally generated funds, as well as its revolving line of credit will be sufficient to enable
the Company to meet its financial requirements during fiscal 2012.
Results of Operations:
Net sales in fiscal 2011 were $25.0 million as compared to fiscal 2010 and 2009 which were $18.8
million. The increases in the fiscal 2011 sales came primarily from a 39% increase in recreational
vehicle sales and a 27% increase in energy sales. The comparable sales in fiscal 2010 to fiscal
2009 came as a result of a decrease in the energy business offset by increases in all other
business categories.
The following is a reconciliation of sales by major market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011
|
|
|
Fiscal 2010
|
|
|
Fiscal 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recreational vehicle
|
|
$
|
16,969,000
|
|
|
$
|
12,209,000
|
|
|
$
|
10,121,000
|
|
Aerospace and defense
|
|
|
1,886,000
|
|
|
|
1,633,000
|
|
|
|
1,507,000
|
|
Energy
|
|
|
5,693,000
|
|
|
|
4,485,000
|
|
|
|
6,693,000
|
|
Biosciences
|
|
|
337,000
|
|
|
|
379,000
|
|
|
|
351,000
|
|
Other
|
|
|
78,000
|
|
|
|
120,000
|
|
|
|
94,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,963,000
|
|
|
$
|
18,826,000
|
|
|
$
|
18,766,000
|
|
|
|
|
|
|
|
|
|
|
|
The increase in sales in the recreational vehicle market in fiscal 2011 resulted from the overall
increase in demand from the Companys largest customer for the parts the Company supplies. The
increase in sales in fiscal 2010 as compared to fiscal 2009 in the recreational vehicle market
came from two factors. The first was a general overall increase in the level of demand in both the
ATV and motorcycle markets. The second contributing factor was the Company becoming the sole
source supplier on a particular part in fiscal 2010 while the part was dual sourced in fiscal 2009.
The Companys sales in its motorcycle market are predominantly with one customer. However, in
fiscal 2011, 2010 and 2009 revenues were also somewhat positively impacted by an additional
customer who contributed sales of $165,000, $287,000 and $429,000 in those three years,
respectively.
10
Sales from the Companys aerospace and defense markets were up 15% in fiscal 2011 due primarily to
increased product shipments to a new customer first announced in fiscal 2010. Fiscal 2010 sales in
the aerospace and defense markets were up 8% with initial sales to that customer occurring in the
Companys fiscal fourth quarter.
Sales from the Companys energy business were up 27% in fiscal 2011 as compared to fiscal 2010 with
the increase due in large measure to sales to a new customer previously announced. The Companys
sales in its energy business decreased 33% in fiscal 2010 as compared to fiscal 2009. The Company
believes that the reduction of the volume of orders from its customers in this segment in fiscal
2010 was due to a combination of factors including the recession, tight credit conditions, lower
oil prices and a reduction in the demand of the particular type of oilfield equipment the Company
manufactures. Sales also decreased as a result of the consignment of the raw material the Company
machines in its end products as opposed to purchasing the raw material. The Company experienced in
fiscal 2010 a higher percentage of consigned raw materials in its parts which then lead to a lower
overall end sales price to its customers. This consignment of raw material effect has continued
and has also affected sales in fiscal 2011.
Sales to the Companys biosciences industry have fluctuated up and down in a $42,000 range in the
last three fiscal years. The Companys believes that these fluctuations are relatively minor and
not indicative of any change in trend of sales in this market.
The Companys sales from its other market are primarily derived from miscellaneous sales in the
computer components fields and amount to less than 1% of the Companys total sales.
The Companys gross margin decreased in fiscal 2011 to 17.8% from 19.9% in fiscal 2010. The
primary reason for the decrease were start-up expenses associated with new programs in the
Companys energy business that were incurred during the first two quarters of fiscal 2011. In
addition, a higher material and outside services content as a percent of sales in fiscal 2011 was
also a factor in the lower gross margins.
The Companys gross margin increased to 19.9% in fiscal 2010 from 12.6% in fiscal 2009. The
primary factor in the increase was that the fiscal 2009 margins were negatively affected by the
recessionary conditions in that year. The increase in gross margin in fiscal 2010 is also
partially attributable to a lower percentage of material and outside services content in product
shipped during the year. Thus, the value added sales (net sales less material and outside
services) were higher during fiscal 2010 than in fiscal 2009. So while the Companys overall sales
were virtually the same year-over-year, the Companys value added sales were up 10% in fiscal 2010
versus fiscal 2009. This increase in the volume of value added sales, in combination with cost
reduction efforts, were the primary drivers in the increase in the gross margin percentage in
fiscal 2010.
No significant sales of obsolete items occurred in fiscal 2009 through 2011 and, correspondingly,
no significant gross margin was recognized.
Selling and administrative expense in fiscal 2011 was approximately $2.8 million, an increase of
$335,000 over the fiscal 2010 amount of approximately $2.4 million. The increase in fiscal 2011
was due primarily to increased payroll costs due to headcount additions as well as increased
incentive compensation expense. Selling and administrative expense increased in fiscal 2010 versus
2009 by $199,000 to $2.4 million. The increase was due primarily to higher payroll costs. The
Company adopted ASC 718 in fiscal 2007 and recorded a non-cash stock option compensation expense of
$205,000, $211,000 and $196,000 in fiscal 2011, 2010 and fiscal 2009, respectively. In addition,
the Company incurred professional service expense in each of those three fiscal years in connection
with its analysis of internal controls over financial reporting as required by the Sarbanes-Oxley
Act.
11
Interest expense in fiscal 2011 amounted to $289,000 as compared to $359,000 in fiscal 2010. The
lower expense is attributable to a lower average level of debt in fiscal 2011 as compared to fiscal
2010, with the
lower level being primarily related to the $1.2 million loan for the Companys building addition
that was paid off in the fiscal 2010 fourth quarter. Interest expense in fiscal 2010 was $57,000
lower than in fiscal 2009 as the Company did not enter into any new lending or capital lease
arrangements and paid down its debt by approximately $2.1 million during the 2010 fiscal year.
The Company recorded income taxes at an effective tax rate of 36% for fiscal 2011, 2010 and 2009,
respectively. The Company maintained its valuation allowance at zero during 2011 and 2010.
Caution Regarding Forward-Looking Statements
Statements included in this Managements Discussion and Analysis of Financial Condition and Results
of Operations, in the letter to shareholders, elsewhere in the Annual Report, in the Companys Form
10-K and in future filings by the Company with the Securities and Exchange Commission, in the
Companys press releases and in oral statements made with the approval of an authorized executive
officer which are not historical or current facts are forward-looking statements. These
statements are made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made and are not predictions of actual
future results. Forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical earnings and those presently
anticipated or projected. These risks and uncertainties are described above under Item 1A. Risk
Factors.
|
|
|
Item 7A.
|
|
Quantitative and Qualitative Disclosures About Market Risk
|
Not applicable.
|
|
|
Item 8.
|
|
Financial Statements and Supplementary Data.
|
See Consolidated Financial Statements section of this Annual Report on Form 10-K beginning on page
20, attached hereto, which consolidated financial statements are incorporated herein by reference.
|
|
|
Item 9.
|
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
|
None.
12
|
|
|
Item 9A.
|
|
Controls and Procedures.
|
Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company carried out an evaluation,
under the supervision and with the participation of our chief executive officer and chief financial
officer, of the effectiveness of the design and operation of our disclosure controls and procedures
as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended. Based on that
evaluation, Michael J. Pudil, the chief executive officer, and Paul D. Sheely, the chief financial
officer, have concluded that as of August 28, 2011 our disclosure controls and procedures were not
effective because of the material weakness in internal control over financial reporting described
below. Notwithstanding the material weakness described below, we believe our consolidated
financial statements presented in this Annual Report on Form 10-K fairly represent, in all material
respects, our financial position, results of operations and cash flows for all periods presented
herein.
Changes in Internal Controls over Financial Reporting
There have been no changes in internal control over financial reporting that occurred during
the fourth quarter ended August 28, 2011 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
Managements Report on Internal Control Over Financial Reporting
The management of the Company is responsible for the preparation of the financial statements and
related financial information appearing in this Annual Report on Form 10-K. The financial
statements and notes have been prepared in conformity with accounting principles generally accepted
in the United States of America. The management of the Company also is responsible for establishing
and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act. A companys internal control over financial reporting is
defined as a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. Our internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of
the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the issuer are being made only in accordance with
authorizations of management and directors of the Company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the financial statements.
Management, including the chief executive officer and chief financial officer, does not expect that
the Companys internal controls will prevent all error and all fraud. Because of its inherent
limitations, a system of internal control over financial reporting can provide only reasonable, not
absolute, assurance that the objectives of the control system are met and may not prevent or detect
misstatements. Further, over time control may become inadequate because of changes in conditions or
the degree of compliance with the policies or procedures may deteriorate.
13
The Companys management hired an outside consulting firm to assist it in the evaluation of the
effectiveness of the Companys internal control over financial reporting. The Companys management
assessed the effectiveness of the Companys internal control over financial reporting as of August
28, 2011 based upon the framework in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the results of
that evaluation, our management has concluded that, as of August 28, 2011, the Companys internal
control over financial
reporting was not effective due to a material weakness in the areas of segregation of duties and
adequacy of personnel resulting from a reduction in staff in its finance and accounting department
during the quarter ended May 31, 2009.
This annual report does not include an attestation report of the Companys independent registered
public accounting firm regarding internal control over financial reporting. Managements report was
not subject to attestation by the Companys independent registered public accounting firm pursuant
to rules of the Securities and Exchange Commission.
|
|
|
Item 9B.
|
|
Other Information.
|
None.
14
PART III
Pursuant to General Instruction E (3), the Company omits Part III, Items 10, 11, 12, 13 and 14, as
a definitive proxy statement will be filed with the Commission pursuant to Regulation 14(a) within
120 days after August 28, 2011 and such information required by such items is incorporated herein
by reference from the proxy statement.
(a) Documents filed as part of this report.
|
1.
|
|
Consolidated Financial Statements: Reference is made to the
Index to Consolidated Financial Statements (page 20) hereinafter contained for
all Consolidated Financial Statements.
|
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
3.1
|
|
|
Restated Articles of Incorporation of WSI Industries, Inc.
Incorporated by reference from Exhibit 3 of the Registrants Form
10-Q for the quarter ended November 29, 1998.
|
|
|
|
|
|
|
3.2
|
|
|
Restated and Amended Bylaws, as amended through January 6, 2005.
Incorporated by reference from Exhibit 3.2 of the Registrants
Form 10-K for the year ended August 28, 2005.
|
|
|
|
|
|
|
10.1
|
|
|
WSI Industries, Inc. 1994 Stock Plan, as amended. Incorporated by
reference from Exhibit 4.1 of the Registrants Registration
Statement on Form S-8 (SEC File No. 333-78491).
|
|
|
|
|
|
|
10.2
|
|
|
WSI Industries, Inc. 2005 Stock Plan. Incorporated by reference
from Exhibit 4.1 of the Registrants Registration Statement on
Form S-8 (SEC File No. 333-155768).
|
|
|
|
|
|
|
10.3
|
|
|
Form of Restricted Stock Award Agreement under the Companys 2005
Stock Plan. Incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K dated February 23, 2007.
|
|
|
|
|
|
|
10.4
|
|
|
Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement under the Companys 2005 Stock Plan. Incorporated by
reference to Exhibit 10.2 to the Registrants Current Report on
Form 8-K dated February 23, 2007.
|
|
|
|
|
|
|
10.5
|
|
|
Form of Restricted Stock Bonus Award Agreement under the Companys
2005 Stock Plan. Incorporated by reference to Exhibit 10.5 to the
Registrants Annual Report on Form 10-K for the year ended August
30, 2009.
|
15
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
10.6
|
|
|
Board of Directors Retirement Program dated June 25, 1982.
Incorporated by reference from Exhibit 10.12 of the Registrants
Form 10-K for the year ended August 25, 2002.
|
|
|
|
|
|
|
10.7
|
|
|
Employment Agreement dated as of October 7, 2009 by and between WSI
Industries, Inc. and Michael J. Pudil. Incorporated by reference to
Exhibit 10.4 to the Registrants Form 8-K dated October 7, 2009.
|
|
|
|
|
|
|
10.8
|
|
|
Employment (change in control) Agreement between Paul D. Sheely and
Registrant dated January 11, 2001 incorporated by reference from
Exhibit 10.2 of the Registrants Form 10-Q for the quarter ended May
27, 2001.
|
|
|
|
|
|
|
10.9
|
|
|
Amendment No. 1 to Employment (change in control) Agreement between
Paul D. Sheely and Registrant dated November 1, 2002. Incorporated
by reference from Exhibit 10.11 of the Registrants Form 10-K for
the year ended August 25, 2002.
|
|
|
|
|
|
|
10.10
|
|
|
Second Amendment to Employment Change in Control Agreement dated
December 29, 2008 by and between WSI Industries, Inc. and Paul D.
Sheely. Incorporated by reference to Exhibit 10.3 to the
Registrants Form 8-K dated December 29, 2008.
|
|
|
|
|
|
|
10.11
|
|
|
Severance Letter Agreement dated October 7, 2009 by and between WSI
Industries, Inc. and Paul D. Sheely. Incorporated by reference to
Exhibit 10.5 to the Registrants Form 8-K dated October 7, 2009.
|
|
|
|
|
|
|
10.12
|
|
|
Employment Offer Letter dated October 5, 2009 by WSI Industries,
Inc. to Benjamin Rashleger. Incorporated by reference to Exhibit
10.1 to the Registrants Form 8-K dated October 7, 2009.
|
|
|
|
|
|
|
10.13
|
|
|
Employment (Change In Control) Agreement dated October 12, 2009 by
and between WSI Industries, Inc. and Benjamin Rashleger.
Incorporated by reference to Exhibit 10.2 to the Registrants Form
8-K dated October 7, 2009.
|
|
|
|
|
|
|
10.14
|
|
|
Form of Restrictive Covenant Agreement by and between WSI
Industries, Inc. and Michael J. Pudil, Paul D. Sheely and Benjamin
Rashleger. Incorporated by reference to Exhibit 10.3 to the
Registrants Form 8-K dated October 7, 2009.
|
|
|
|
|
|
|
10.15
|
|
|
Promissory Note dated as of May 3, 2004 by WSI Industries, Inc. as
debtor and Excel Bank Minnesota as holder in the original principal
amount of $1,360,000. Incorporated by reference from Exhibit 10.2
of the Registrants Form 8-K dated May 3, 2004.
|
|
|
|
|
|
|
10.16
|
|
|
Loan Agreement dated as of May 3, 2004 between WSI Industries, Inc.
and Excel Bank Minnesota. Incorporated by reference from Exhibit
10.3 of the Registrants Form 8-K dated May 3, 2004.
|
|
|
|
|
|
|
10.17
|
|
|
Mortgage and Security Agreement and Fixture Financing Statement
dated as of May 3, 2004 between WSI Industries, Inc. and Excel Bank
Minnesota. Incorporated by reference from Exhibit 10.6 of the
Registrants Form 8-K dated May 3, 2004.
|
16
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
10.18
|
|
|
Second Amendment and Modification of Revolving Line of Credit Loan
Agreement and Reaffirmation of Guaranties dated as of May 3, 2004 by
and among WSI Industries, Inc., Taurus Numeric Tool, Inc. and WSI
Rochester, Inc. and Excel Bank Minnesota. Incorporated by reference
from Exhibit 10.8 of the Registrants Form 8-K dated May 3, 2004.
|
|
|
|
|
|
|
10.19
|
|
|
Third Amendment and Modification of Revolving Line of Credit Loan
Agreement and Reaffirmation of Guaranties dated as of January 1,
2005 by and among WSI Industries, Inc., Taurus Numeric Tool, Inc.
and WSI Rochester, Inc. and Excel Bank Minnesota. Incorporated by
reference from Exhibit 10.1 of the Registrants Form 10-Q for the
quarter ended November 28, 2004.
|
|
|
|
|
|
|
10.20
|
|
|
Fourth Amendment and Modification of Revolving Line of Credit Loan
Agreement and Reaffirmation of Guaranties dated as of January 1,
2006 by and among WSI Industries, Inc., Taurus Numeric Tool, Inc.
and WSI Rochester, Inc. and Excel Bank Minnesota. Incorporated by
reference from Exhibit 10.1 of the Registrants Form 10-QSB for the
quarter ended November 27, 2005.
|
|
|
|
|
|
|
10.21
|
|
|
Fifth Amendment and Modification of Revolving Line of Credit Loan
Agreement and Reaffirmation of Guaranties dated as of January 1,
2007 by and among WSI Industries, Inc., Taurus Numeric Tool, Inc.
and WSI Rochester, Inc. and Excel Bank Minnesota. Incorporated by
reference from Exhibit 10.1 of the Registrants Form 10-QSB for the
quarter ended November 26, 2006.
|
|
|
|
|
|
|
10.22
|
|
|
Sixth Amendment and Modification of Revolving Line of Credit Loan
Agreement and Reaffirmation of Guaranties dated as of January 31,
2008 by and among WSI Industries, Inc., Taurus Numeric Tool, Inc.
and WSI Rochester, Inc. and M&I Marshall and IIsley Bank.
Incorporated by reference from Exhibit 10.1 of the Registrants Form
10-QSB for the quarter ended February 24, 2008.
|
|
|
|
|
|
|
10.23
|
|
|
Loan agreement dated February 1, 2011 between WSI Industries, Inc.,
Taurus Numeric Tool, Inc., WSI Rochester, Inc., and M&I Marshall &
Ilsley Bank. Incorporated by reference to Exhibit 10.1 of the
Registrants Form 10-Q for the quarter ended February 27, 2011.
|
|
|
|
|
|
|
10.24
|
|
|
Amended and Restated Revolving Credit Promissory Note dated February
1, 2011 in the principal amount of $1,000,000 by WSI Industries,
Inc. in favor of M&I Marshall & Ilsley Bank.
|
|
|
|
|
|
|
10.25
|
|
|
Amended and Restated Security Agreement dated February 1, 2011 by
and between WSI Industries, Inc. and M&I Marshall & Ilsley Bank.
|
|
|
|
|
|
|
10.26
|
|
|
Amended and Restated Security Agreement dated February 1, 2011 by
and between Taurus Numeric Tool, Inc. and M&I Marshall & Ilsley
Bank.
|
|
|
|
|
|
|
10.27
|
|
|
Amended and Restated Security Agreement dated February 1, 2011 by
and between WSI Rochester, Inc. and M&I Marshall & Ilsley Bank.
|
17
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
10.28
|
|
|
Guaranty dated February 1, 2011 by and WSI Rochester, Inc. and M&I
Marshall & Ilsley Bank
|
|
|
|
|
|
|
10.29
|
|
|
Guaranty dated February 1, 2011 by and between Taurus Numeric Tool,
Inc. and M&I Marshall & Ilsley Bank
|
|
|
|
|
|
|
14.1
|
|
|
Code of Ethics & Business Conduct adopted by WSI Industries, Inc. on
October 29, 2003. Incorporated by reference to Exhibit 14.1 of the
Registrants Annual Report on Form 10-K for the year ended August
31, 2003.
|
|
|
|
|
|
|
21.1
|
|
|
Subsidiaries of the Registrant.
|
|
|
|
|
|
|
23.1
|
|
|
Consent of Schechter Dokken Kanter Andrews & Selcer Ltd.
|
|
|
|
|
|
|
31.1
|
|
|
Certification of Chief Executive Officer pursuant to Rules 13a-14(a)
and 15d-14(a) of the Exchange Act.
|
|
|
|
|
|
|
31.2
|
|
|
Certification of Chief Financial Officer pursuant to Rules 13a-14(a)
and 15d-14(a) of the Exchange Act.
|
|
|
|
|
|
|
32.1
|
|
|
Certification pursuant to 18 U.S.C. §1350.
|
18
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
WSI INDUSTRIES, INC.
|
|
|
BY:
|
|
/s/ Michael J. Pudil
|
|
|
|
|
Michael J. Pudil
|
|
|
|
|
Chief Executive Officer
(principal executive officer)
|
|
|
|
|
|
BY:
|
|
/s/ Paul D. Sheely
|
|
|
|
|
Paul D. Sheely
|
|
|
|
|
Vice President and Treasurer
(principal financial and accounting officer)
|
|
DATE: November 17, 2011
Each person whose signature appears below hereby constitutes and appoints Michael J. Pudil and Paul
D. Sheely, and each of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution, to sign on his behalf, individually and in each capacity stated below, all amendments
to this Form 10-K and to file the same, with all exhibits thereto and any other documents in
connection therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully and to all intents and
purposes as each might or could do in person, hereby ratifying and confirming each act that said
attorneys-in-fact and agents may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated:
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Michael J. Pudil
Michael J. Pudil
|
|
Chief Executive Officer and Director
|
|
November 17, 2011
|
|
|
|
|
|
/s/ Benjamin T. Rashleger
Benjamin T. Rashleger
|
|
President, Chief Operating Officer and
Director
|
|
November 17, 2011
|
|
|
|
|
|
/s/ Thomas C. Bender
Thomas C. Bender
|
|
Director
|
|
November 17, 2011
|
|
|
|
|
|
/s/ Burton F. Myers II
Burton F. Myers II
|
|
Director
|
|
November 17, 2011
|
|
|
|
|
|
/s/ James D. Hartman
James D. Hartman
|
|
Director
|
|
November 17, 2011
|
19
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
26-35
|
|
|
|
|
|
|
20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
WSI Industries, Inc.
Monticello, Minnesota
We have audited the consolidated balance sheets of WSI Industries, Inc. and Subsidiaries as of
August 28, 2011 and August 29, 2010 and the related consolidated statements of income,
stockholders equity and cash flows for each of the years in the three-year period ended August 28,
2011. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of WSI Industries, Inc. and Subsidiaries as
of August 28, 2011 and August 29, 2010, and the results of its operations and its cash flows for
each of the years in the three-year period ended August 28, 2011, in conformity with accounting
principles generally accepted in the United States of America.
|
|
|
/s/ Schechter Dokken Kanter
Andrews & Selcer Ltd
|
|
|
Minneapolis, Minnesota
November 17, 2011
21
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 28, 2011 AND AUGUST 29, 2010
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,920,078
|
|
|
$
|
2,347,113
|
|
Accounts receivable, less allowance for doubtful
accounts of $10,074
|
|
|
3,292,227
|
|
|
|
3,087,087
|
|
Inventories (Note 2)
|
|
|
2,016,325
|
|
|
|
2,185,283
|
|
Prepaid and other current assets
|
|
|
227,239
|
|
|
|
60,686
|
|
Deferred tax assets (Note 6)
|
|
|
254,439
|
|
|
|
171,713
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
8,710,308
|
|
|
|
7,851,882
|
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment, at cost:
|
|
|
|
|
|
|
|
|
Land
|
|
|
819,000
|
|
|
|
819,000
|
|
Building and improvements
|
|
|
2,306,220
|
|
|
|
2,299,648
|
|
Machinery and equipment
|
|
|
12,507,519
|
|
|
|
10,998,303
|
|
Less accumulated depreciation
|
|
|
(8,554,678
|
)
|
|
|
(7,610,282
|
)
|
|
|
|
|
|
|
|
Total property, plant, and equipment
|
|
|
7,078,061
|
|
|
|
6,506,669
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets (Note 6)
|
|
|
|
|
|
|
258,901
|
|
|
|
|
|
|
|
|
|
|
Other assets (Note 10):
|
|
|
|
|
|
|
|
|
Goodwill and related acquisition costs
|
|
|
2,368,452
|
|
|
|
2,368,452
|
|
|
|
|
|
|
|
|
|
|
$
|
18,156,821
|
|
|
$
|
16,985,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
1,302,958
|
|
|
$
|
1,266,641
|
|
Accrued compensation and employee withholdings
|
|
|
1,018,665
|
|
|
|
615,048
|
|
Other accrued expenses
|
|
|
116,609
|
|
|
|
367,218
|
|
Current portion of long-term debt (Note 3)
|
|
|
989,191
|
|
|
|
1,165,192
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,427,423
|
|
|
|
3,414,099
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion (Note 3)
|
|
|
3,935,712
|
|
|
|
3,736,505
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities (Note 6)
|
|
|
308,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (Note 5):
|
|
|
|
|
|
|
|
|
Common stock, par value $.10 a share; authorized
10,000,000 shares; issued and outstanding
2,889,567 shares and 2,888,492 respectively
|
|
|
288,957
|
|
|
|
288,850
|
|
Capital in excess of par value
|
|
|
3,149,674
|
|
|
|
2,922,048
|
|
Deferred compensation
|
|
|
(275,106
|
)
|
|
|
(250,412
|
)
|
Retained earnings
|
|
|
7,322,100
|
|
|
|
6,874,814
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
10,485,625
|
|
|
|
9,835,300
|
|
|
|
|
|
|
|
|
|
|
$
|
18,156,821
|
|
|
$
|
16,985,904
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
22
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED AUGUST 28, 2011, AUGUST 29, 2010 AND AUGUST 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales (Note 8)
|
|
$
|
24,963,235
|
|
|
$
|
18,826,498
|
|
|
$
|
18,765,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
20,527,925
|
|
|
|
15,079,679
|
|
|
|
16,394,530
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
4,435,310
|
|
|
|
3,746,819
|
|
|
|
2,371,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expense
|
|
|
2,759,493
|
|
|
|
2,424,651
|
|
|
|
2,225,914
|
|
Interest and other income
|
|
|
(18,640
|
)
|
|
|
(33,183
|
)
|
|
|
(22,385
|
)
|
Interest expense
|
|
|
289,108
|
|
|
|
359,269
|
|
|
|
416,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,029,961
|
|
|
|
2,750,737
|
|
|
|
2,620,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
1,405,349
|
|
|
|
996,082
|
|
|
|
(248,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes (benefits) (Note 6)
|
|
|
505,926
|
|
|
|
358,589
|
|
|
|
(89,542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
899,423
|
|
|
$
|
637,493
|
|
|
$
|
(159,185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
.32
|
|
|
$
|
.23
|
|
|
$
|
(.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
.31
|
|
|
$
|
.23
|
|
|
$
|
(.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend per share
|
|
$
|
.16
|
|
|
$
|
|
|
|
$
|
.0375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding, basic
|
|
|
2,825,921
|
|
|
|
2,801.210
|
|
|
|
2,789,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
common shares outstanding, diluted
|
|
|
2,877,064
|
|
|
|
2,801,210
|
|
|
|
2,789,717
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
23
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
Capital in
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Stock
|
|
|
|
|
|
|
Excess of
|
|
|
Deferred
|
|
|
Retained
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Par Value
|
|
|
Compensation
|
|
|
Earnings
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2008
|
|
|
2,825,358
|
|
|
$
|
282,536
|
|
|
$
|
2,573,797
|
|
|
$
|
(245,984
|
)
|
|
$
|
6,501,010
|
|
|
$
|
9,111,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(159,185
|
)
|
|
|
(159,185
|
)
|
Restricted stock grants
|
|
|
63,382
|
|
|
|
6,338
|
|
|
|
226,591
|
|
|
|
(232,929
|
)
|
|
|
|
|
|
|
|
|
Restricted stock issuance
|
|
|
|
|
|
|
|
|
|
|
(48,176
|
)
|
|
|
48,176
|
|
|
|
|
|
|
|
|
|
Stock option compensation
|
|
|
|
|
|
|
|
|
|
|
196,284
|
|
|
|
|
|
|
|
|
|
|
|
196,284
|
|
Restricted stock grants
not earned and payment
of withholding taxes
|
|
|
(9,872
|
)
|
|
|
(988
|
)
|
|
|
(77,428
|
)
|
|
|
68,876
|
|
|
|
|
|
|
|
(9,540
|
)
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(104,504
|
)
|
|
|
(104,504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 30, 2009
|
|
|
2,878,868
|
|
|
$
|
287,886
|
|
|
$
|
2,871,068
|
|
|
$
|
(361,861
|
)
|
|
$
|
6,237,321
|
|
|
$
|
9,034,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
637,493
|
|
|
|
637,493
|
|
Restricted stock grants
|
|
|
58,405
|
|
|
|
5,841
|
|
|
|
133,215
|
|
|
|
(139,056
|
)
|
|
|
|
|
|
|
|
|
Restricted stock issuance
|
|
|
|
|
|
|
|
|
|
|
(94,919
|
)
|
|
|
94,919
|
|
|
|
|
|
|
|
|
|
Stock option compensation
|
|
|
|
|
|
|
|
|
|
|
210,712
|
|
|
|
|
|
|
|
|
|
|
|
210,712
|
|
Restricted stock grants
not earned and payment
of withholding taxes
|
|
|
(48,781
|
)
|
|
|
(4,877
|
)
|
|
|
(198,028
|
)
|
|
|
155,586
|
|
|
|
|
|
|
|
(47,319
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 29, 2010
|
|
|
2,888,492
|
|
|
$
|
288,850
|
|
|
$
|
2,922,048
|
|
|
$
|
(250,412
|
)
|
|
$
|
6,874,814
|
|
|
$
|
9,835,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
899,423
|
|
|
|
899,423
|
|
Restricted stock grants
|
|
|
37,715
|
|
|
|
3,771
|
|
|
|
227,475
|
|
|
|
(231,246
|
)
|
|
|
|
|
|
|
|
|
Restricted stock issuance
|
|
|
|
|
|
|
|
|
|
|
(97,316
|
)
|
|
|
97,316
|
|
|
|
|
|
|
|
|
|
Stock option compensation
|
|
|
|
|
|
|
|
|
|
|
205,232
|
|
|
|
|
|
|
|
|
|
|
|
205,232
|
|
Restricted stock grants
not earned and payment
of withholding taxes
|
|
|
(52,148
|
)
|
|
|
(5,215
|
)
|
|
|
(122,080
|
)
|
|
|
109,236
|
|
|
|
|
|
|
|
(18,059
|
)
|
Exercise of stock
appreciation rights and
payment of withholding
taxes
|
|
|
15,508
|
|
|
|
1,551
|
|
|
|
14,315
|
|
|
|
|
|
|
|
|
|
|
|
15,866
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(452,137
|
)
|
|
|
(452,137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 28, 2011
|
|
|
2,889,567
|
|
|
$
|
288,957
|
|
|
$
|
3,149,674
|
|
|
$
|
(275,106
|
)
|
|
$
|
7,322,100
|
|
|
$
|
10,485,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
24
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 28, 2011, AUGUST 29, 2010 AND AUGUST 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
899,423
|
|
|
$
|
637,493
|
|
|
$
|
(159,185
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment
|
|
|
1,171,259
|
|
|
|
1,074,457
|
|
|
|
1,050,833
|
|
Amortization of deferred financing cost
|
|
|
|
|
|
|
|
|
|
|
4,409
|
|
Net tax (benefits) expense related to share based compensation
|
|
|
(21,901
|
)
|
|
|
30,496
|
|
|
|
|
|
Deferred taxes
|
|
|
506,138
|
|
|
|
339,979
|
|
|
|
(79,571
|
)
|
Stock option compensation
|
|
|
205,232
|
|
|
|
210,712
|
|
|
|
196,284
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(205,140
|
)
|
|
|
(351,501
|
)
|
|
|
1,017,768
|
|
Inventories
|
|
|
168,958
|
|
|
|
(38,752
|
)
|
|
|
389,475
|
|
Prepaid and other current assets
|
|
|
(166,553
|
)
|
|
|
(8,784
|
)
|
|
|
137,031
|
|
Increase (decrease) in accounts payable and accrued expenses
|
|
|
132,720
|
|
|
|
(259,953
|
)
|
|
|
(790,058
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
2,690,136
|
|
|
|
1,634,147
|
|
|
|
1,766,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant, and equipment
|
|
|
(462,588
|
)
|
|
|
(60,767
|
)
|
|
|
(421,634
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(462,588
|
)
|
|
|
(60,767
|
)
|
|
|
(421,634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of long-term debt
|
|
|
(1,256,857
|
)
|
|
|
(2,075,723
|
)
|
|
|
(829,497
|
)
|
Net tax benefits (expense) related to share based compensation
|
|
|
21,901
|
|
|
|
(30,496
|
)
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
|
|
|
|
|
|
|
|
625,000
|
|
Issuance of common stock
|
|
|
32,510
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(452,137
|
)
|
|
|
|
|
|
|
(104,504
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(1,654,583
|
)
|
|
|
(2,106,219
|
)
|
|
|
(309,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
572,965
|
|
|
|
(532,839
|
)
|
|
|
1,036,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
|
|
2,347,113
|
|
|
|
2,879,952
|
|
|
|
1,843,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
|
$
|
2,920,078
|
|
|
$
|
2,347,113
|
|
|
$
|
2,879,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
289,274
|
|
|
$
|
363,278
|
|
|
$
|
413,120
|
|
Payroll withholding taxes in cashless stock option exercise
|
|
|
56,604
|
|
|
|
16,823
|
|
|
|
9,540
|
|
Income taxes
|
|
|
35,641
|
|
|
|
15,536
|
|
|
|
13,762
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of machinery through capital lease
|
|
|
1,280,063
|
|
|
|
|
|
|
|
919,043
|
|
See notes to consolidated financial statements.
25
WSI INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 28, 2011, AUGUST 29, 2010 AND AUGUST 30, 2009
1.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Business Description
WSI Industries, Inc. and Subsidiaries
(the Company) is involved in the precision contract metal machining
business primarily serving the recreational vehicle, energy,
aerospace/avionics and bioscience industries.
Fiscal Year
WSI Industries, Inc.s fiscal years represent a 52- to
53-week period ending the last Sunday in August. Fiscal 2011, 2010
and 2009 each consisted of 52 weeks.
Basis of Presentation
The consolidated financial statements include the accounts of WSI
Industries, Inc. and its subsidiaries. All material intercompany balances and transactions
have been eliminated. Our consolidated financial statements for the year ended August 28,
2011 were evaluated for subsequent events through the date it was filed with the SEC on Form
10-K.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits
with financial institutions and short-term, highly liquid investments with original maturities
of three months or less. At times bank balances may exceed federally insured limits and the
risk of losses related to such concentrations may have increased as a result of economic
developments, particularly with the instability in the commercial and investment banking
system. Cash equivalents are carried at cost plus accrued interest which approximates fair
value.
Inventories
Inventory costs determined using the average cost method consist of material,
direct labor, and manufacturing overhead. They are valued at the lower of cost or market by
comparing the cost of each item in inventory to its most recent sales price or sales order
price. Inventory cost is adjusted down for any excess of cost over the net realizable value
of inventory components.
In addition, the Company determines whether its inventory is excess and obsolete by analyzing
the sales history of its inventory, sales orders on hand and indications from the Companys
customers as to the future of various parts or programs. If, in the Companys determination,
the inventory value has become impaired, the Company adjusts the inventory value to the amount
the Company estimates as the ultimate net realizable value for that inventory. The Company
performs its lower of cost or market testing, as well as its excess or obsolete inventory
analyses, quarterly.
Property, plant, equipment and depreciation and amortization
The cost of substantially all
machinery and equipment, and buildings and improvements are being depreciated using the
straight-line method. The estimated useful lives of the assets are as follows:
|
|
|
|
|
Machinery and equipment
|
|
|
3 to 7 years
|
|
Building and improvements
|
|
|
15 to 40 years
|
|
26
Long-lived Assets
The Company evaluates long-term assets on a periodic basis in compliance
with Accounting Standards Codification (ASC) 360,
Accounting for the Impairment of
Long-lived Assets
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets carrying amount. If the
undiscounted cash flows are less than the carrying amount, the impairment recognized is
measured by the amount the carrying value of the assets exceeds their fair value determined
primarily through the present value of estimated future cash flows.
Goodwill
The Company assesses the valuation of its goodwill according to the provisions of
ASC 350 to determine if the current value of goodwill has been impaired. The Company has also
adopted Accounting Standard Update (ASU) No. 2011-08,
IntangiblesGoodwill and Other (Topic
350).
With ASU No. 2011-08, an entity is given the option to make a qualitative evaluation of
goodwill impairment to determine whether it should calculate the fair value of its reporting
unit. In the fiscal 2011 fourth quarter, the Company made its qualitative evaluation of its
goodwill considering, among other things, the overall macroeconomic conditions, industry and
market considerations, overall financial performance and other relevant company specific
events. Based on this qualitative evaluation, the Company concluded that it was more likely
than not that its goodwill was not impaired and that it wasnt required to calculate the fair
value of its reporting unit. If the Company has changes in events or circumstances, including
reductions in anticipated cash flows generated by our operations, goodwill could become
impaired which would result in a charge to earnings.
Income Taxes
The determination of the Companys income tax-related account balances
requires the exercised of significant judgment by management. Accordingly, the Company
determines deferred tax assets and liabilities based upon the difference between financial
statement and tax bases of assets and liabilities using enacted tax rates in effect for the
year the differences are expected to affect taxable income. Management assesses the
likelihood that deferred tax assets will be recovered from future taxable income and
establishes a valuation allowance when management believes recovery is unlikely.
Revenue Recognition
Revenues from sales of product are recorded generally upon shipment.
The Company considers its revenue recognition policy to fall under the guidance of FASBs
conceptual framework for revenue recognition. The Company recognizes revenue only after: (a)
the Company has received a purchase order identifying price and delivery terms or services to
be rendered; (b) shipment has occurred, or in the case of services, after the service has
been completed; (c) the Companys price is fixed as evidenced by the purchase order; and (d)
collectability is reasonably assured. The Company refers to its revenues as net sales in
its Consolidated Statements of Income as the Companys sales are reduced for any product
returned by customers.
The Company generally does not require collateral on its trade receivables. The maximum loss
that the Company would incur if a customer failed to pay amounts owed would be limited to the
recorded amount due after any allowances provided. Credit losses relating to customers have
been minimal and within managements expectations. Based on managements evaluation of
uncollected accounts receivable throughout the year, bad debts are provided for on the
allowance method. Accounts are considered delinquent if they are 120 days past due. The
Company mitigates its credit risk by performing credit checks and actively pursuing past due
accounts.
Freight costs
The Company includes freight, shipping and handling costs, in the cost of
goods sold.
Use of Estimate
s The preparation of financial statements in conformity with U. S. generally
accepted accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates. Significant estimates made in those financial
statements consist of estimates related to the
impairment of goodwill, the evaluation of excess or obsolete inventory and the valuation
allowance connected to the deferred tax assets.
27
Earnings per Share
Basic earnings per share is computed using the weighted average number
of common shares outstanding. Diluted earnings per share is computed using the combination of
dilutive common share equivalents and the weighted average number of common shares
outstanding.
Stock-based compensation
The following information has been determined as if the
Company had accounted for its stock options under the fair value method of ASC 718. The fair
value for these options was estimated, for the purpose of determining compensation, at the
date of grant using the Black-Scholes option pricing model with the following assumptions as
set forth in the table below. The estimated fair value of the options is amortized to expense
over the options vesting period.
|
|
|
|
|
|
|
Date of Grant in fiscal
|
|
2011
|
|
2010
|
|
2009
|
Dividend yield
|
|
2.3%-3.25%
|
|
|
|
|
Expected volatility
|
|
77.3%-78.5%
|
|
69.8%-70.2%
|
|
60.8%
|
Risk free interest rate
|
|
1.2%-3.3%
|
|
2.6%-3.8%
|
|
1.6%-2.47%
|
Expected term
|
|
5-10 years
|
|
5-10 years
|
|
5-10 years
|
ASC 718 also requires the benefit of tax deductions in excess of recognized compensation cost
to be reported as a financing cash flow, rather than an operating cash flow under current
accounting literature.
The Company granted shares of non-vested restricted stock to various employees during the
years ended August 28, 2011, August 29, 2010 and August 30, 2009. The grants consisted of
both outright stock grants as well as stock that could be earned in connection with the
Companys incentive compensation program should certain predetermined targets be met. Both
kinds of non-vested restricted stock vest over three years with the grantees of the restricted
stock entitled to receive dividends in additional shares of restricted stock that also vest
yearly and to voting rights for the shares. The shares are accounted for under ASC 718 as
expense over the period that they vest. The shares are also reflected in stockholders equity
as deferred compensation which is calculated at the value of the shares at the date of the
grant.
Reclassification
Certain prior year items have been reclassified to conform to the current
year presentation.
Recent Accounting Pronouncements
In May 2011, the FASB issued ASU No. 2011-04,
Fair Value Measurement
to amend the accounting
and disclosure requirements on fair value measurements. This ASU limits the
highest-and-best-use measure to nonfinancial assets, permits certain financial assets and
liabilities with offsetting positions in market or counterparty credit risks to be measured at
a net basis, and provides guidance on the applicability of premiums and discounts.
Additionally, this update expands the disclosure on Level 3 inputs by requiring quantitative
disclosure of the unobservable inputs and assumptions, as well as description of the valuation
processes and the sensitivity of the fair value to changes in unobservable inputs. ASU No.
2011-04 is to be applied prospectively and is effective during interim and annual periods
beginning after December 15, 2011. The Company does not expect the adoption of this update
will have a material effect on its consolidated financial statements.
28
In June 2011, the FASB issued ASU No. 2011-05,
Presentation of Comprehensive Income
. This ASU
presents an entity with the option to present the total of comprehensive income, the
components of net
income, and the component of other comprehensive income either in a single continuous
statement of comprehensive income or in two separate but consecutive statements. In both
choices, an entity is required to present each component of other comprehensive income along
with a total for other comprehensive income, and a total amount for comprehensive income. This
update eliminates the option to present the components of other comprehensive income as part
of the statement of changes in stockholders equity/deficit. The amendments in this update do
not change the items that must be reported in other comprehensive income or when an item of
other comprehensive income must be reclassified to net income. ASU No. 2011-05 should be
applied retrospectively and is effective for fiscal years, and interim periods within those
years, beginning after 15 December 2011. As ASU No. 2011-05 relates only to the presentation
of Comprehensive Income, the Company does not expect the adoption of this update will have a
material effect on its consolidated financial statements.
In September 2011, the FASB issued ASU No. 2011-08.
Intangibles and Goodwill Other (Topic
350)
. This ASU gives the entity the option to make a qualitative evaluation of goodwill
impairment to determine whether it should calculate the fair value of its reporting unit. The
amendments also improve previous guidance by expanding upon the examples of events and
circumstances that an entity should consider between annual impairment tests in determining
whether it is more likely than not that the fair value of a reporting unit is less than its
carrying amount. Also, the amendments improve the examples of events and circumstances that an
entity having a reporting unit with a zero or negative carrying amount should consider in
determining whether to measure an impairment loss, if any, under the second step of the
goodwill impairment test. The amendments are effective for annual and interim goodwill
impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption
is permitted, including for annual and interim goodwill impairment tests performed as of a
date before September 15, 2011, if an entitys financial statements for the most recent annual
or interim period have not yet been issued or, for nonpublic entities, have not yet been made
available for issuance. The Company has adopted this update effective with these financial
statements.
Inventories consist primarily of raw material, work-in-process (WIP) and finished goods valued
at the lower of cost or market value:
|
|
|
|
|
|
|
|
|
|
|
August 28, 2011
|
|
|
August 29, 2010
|
|
|
|
Raw material
|
|
$
|
347,829
|
|
|
$
|
584,719
|
|
WIP
|
|
|
976,879
|
|
|
|
939,085
|
|
Finished goods
|
|
|
691,617
|
|
|
|
661,479
|
|
|
|
|
|
|
|
|
|
|
$
|
2,016,325
|
|
|
$
|
2,185,283
|
|
|
|
|
|
|
|
|
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
August 28, 2011
|
|
|
August 29, 2010
|
|
|
|
|
|
|
|
|
|
|
Building related mortgages & term debt
|
|
$
|
1,123,771
|
|
|
$
|
1,442,676
|
|
Capitalized lease obligations
|
|
|
3,801,132
|
|
|
|
3,459,021
|
|
|
|
|
|
|
|
|
|
|
|
4,924,903
|
|
|
|
4,901,697
|
|
Less current portion
|
|
|
989,191
|
|
|
|
1,165,192
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
3,935,712
|
|
|
$
|
3,736,505
|
|
|
|
|
|
|
|
|
29
The Company purchased its land and building in May 2004 and at that time entered into two mortgages. The first mortgage was
with its bank for $1,360,000 that matures on May 1, 2014. The mortgage had an initial interest rate of 5.37% and required monthly
principal and interest payments of $8,307 based on a 25-year amortization schedule. Effective May 3, 2009 the interest rate
adjusted to a rate 2.5% above the monthly yield on United States Treasury five-year securities. The new interest rate is 4.38%
with monthly payments of $7,637 also based on a 25-year amortization schedule. The mortgage is secured by all assets of the
Company.
The Company also entered into a mortgage with the City of Monticello, Minnesota Economic Development Authority (MEDA). The MEDA
mortgage was subordinated to the bank mortgage, carried an interest rate of 2% and required monthly principal and interest payments
of $1,483 based on a 25-year amortization schedule. The entire balance was due May 1, 2011 and it was fully paid as of that date.
Maturities of long-term debt are as follows:
|
|
|
|
|
Fiscal years ending August:
|
|
|
|
|
2012
|
|
$
|
989,191
|
|
2013
|
|
|
974,537
|
|
2014
|
|
|
1,910,520
|
|
2015
|
|
|
530,723
|
|
2016
|
|
|
222,648
|
|
Thereafter
|
|
|
297,284
|
|
Included in the consolidated balance sheet at August 28, 2011 are cost and accumulated depreciation on equipment subject to
capitalized leases of $8,852,678 and $5,221,130, respectively. At August 29, 2010, the amounts were $7,537,576 and $4,258,583,
respectively. The capital leases carry interest rates from 4.5% to 8.4% and mature from 2012 2018.
The present value of the net minimum payments on capital leases which is included in long-term debt as of August 28, 2011 is as
follows:
|
|
|
|
|
Fiscal years ending August:
|
|
|
|
|
2012
|
|
$
|
1,151,040
|
|
2013
|
|
|
1,073,681
|
|
2014
|
|
|
958,590
|
|
2015
|
|
|
570,940
|
|
2016
|
|
|
242,196
|
|
Thereafter
|
|
|
308,660
|
|
|
|
|
|
Total minimum lease payments
|
|
|
4,305,107
|
|
Less amount representing interest
|
|
|
503,975
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
|
3,801,132
|
|
Current portion
|
|
|
946,642
|
|
|
|
|
|
Capital lease obligation, less current portion
|
|
$
|
2,854,490
|
|
|
|
|
|
Line of Credit:
The Company renewed its revolving credit agreement with its bank on February 1, 2011. Under
the agreement, the Company can borrow up to $1 million, with the loan being collateralized by
all assets of the Company. The agreement expires February 1, 2012 and has restrictive
provisions requiring minimum net worth, current and debt service coverage ratios as well as a
maximum ratio of debt to tangible net worth. At August 28, 2011, the Company was in
compliance with these provisions.
Interest on any amounts borrowed under the agreement would be at a rate equal to the London
Interbank Offered Rates (LIBOR) (.22% at August 28, 2011) plus 3.0%. However, the rate
shall never be less than 3.75%. There were no amounts outstanding related to its revolving
credit agreement at August 28, 2011 and August 29, 2010, respectively.
30
4.
|
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
The carrying amounts of financial instruments, including cash and equivalents, receivables,
accounts payable and accrued expenses, and current maturities on long-term debt obligations
approximates fair values due to their short term nature. Interest on long-term debt is
primarily at fixed rates which do not differ significantly from approximate market rates at
August 28, 2011.
5.
|
|
STOCK-BASED COMPENSATION
|
Stock Options
The 1994 Stock Option Plan was approved and 450,000 shares of common stock
were reserved for granting of options to officers, key employees, and directors. The Plan
expired on September 29, 2004 and therefore no shares remain to be granted.
The 2005 Stock Option Plan was approved and 600,000 shares of common stock were reserved for
granting of options to officers, key employees and directors. The Plan has a term of 10 years
and will expire in 2015.
Stock options vest over a period of six months to three years for both stock option plans.
Option transactions during the three years ended August 28, 2011 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1994 Stock
|
|
|
2005 Stock
|
|
|
|
Option Plan
|
|
|
Option Plan
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
Outstanding at August 31, 2008
|
|
|
2,000
|
|
|
$
|
2.75
|
|
|
|
121,666
|
|
|
$
|
4.35
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
53,000
|
|
|
|
3.46
|
|
Forfeited
|
|
|
(2,000
|
)
|
|
|
2.75
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at August 30, 2009
|
|
|
|
|
|
$
|
|
|
|
|
174,666
|
|
|
|
4.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
45,000
|
|
|
|
2.32
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at August 29, 2010
|
|
|
|
|
|
|
|
|
|
|
219,666
|
|
|
|
3.72
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
61,000
|
|
|
|
5.39
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
(7,000
|
)
|
|
|
4.18
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(25,500
|
)
|
|
|
3.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at August 28, 2011
|
|
|
|
|
|
|
|
|
|
|
248,166
|
|
|
$
|
4.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the 25,500 stock options from the 2005 Plan that were exercised in fiscal 2011, 9,992
shares were returned to the Company to pay for the exercise price and for related payroll
withholding taxes.
The weighted fair value of options granted during the years ended August 28, 2011, August 29,
2010, and August 30, 2009 was $3.10, $1.74 and $2.34, respectively. The total intrinsic value
of options exercised for the years August 28, 2011, August 29, 2010 and August 30, 2009 was
$50,900, $0 and $0, respectively. The intrinsic value for options outstanding at August 28,
2011 was $317,922.
31
Cash received from option exercises for years ended August 28, 2011. August 29, 2010 and
August 30, 2009 was $32,510, $0 and $0, respectively. The actual tax benefit realized for the
tax deductions from option exercises totaled $21,901, $0 and $0 for fiscal years 2011, 2010
and 2009, respectively.
As of August 28, 2011, there was $135,287 of total unearned compensation cost related to
option-based compensation arrangements to be recognized over an expected weighted average of 1
year.
As of August 28, 2011, there were 31,000 shares with an exercise price of $2.13, 103,166
shares with exercise prices between $3.00 and $3.47 and 114,000 options outstanding with
exercise prices between $4.93 and $6.82. At August 28, 2011, outstanding options had a
weighted-average remaining contractual life of 7 years.
The number of options exercisable as of August 28, 2011, August 29, 2010 and August 30, 2009
were 193,999, 169,999 and 115,666, respectively, at weighted average share prices of $4.02,
$3.89, and $3.30 per share, respectively. At August 28, 2011, there were 54,167 options that
had not vested.
The Company also grants non-vested restricted shares as part of the 2005 Stock Option Plan.
These shares typically vest over a three year period and sometimes contain required minimum
threshold levels before the shares are earned. Non-vested restricted share transactions
during the three years ended August 28, 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Average Price
|
|
Outstanding at August 31, 2008
|
|
|
42,375
|
|
|
$
|
5.80
|
|
Granted
|
|
|
63,382
|
|
|
|
3.67
|
|
Vested
|
|
|
(13,444
|
)
|
|
|
5.53
|
|
Forfeited
|
|
|
(6,174
|
)
|
|
|
6.93
|
|
|
|
|
|
|
|
|
Outstanding at August 30, 2009
|
|
|
86,139
|
|
|
|
4.20
|
|
Granted
|
|
|
58,405
|
|
|
|
2.38
|
|
Vested
|
|
|
(20,129
|
)
|
|
|
4.72
|
|
Forfeited
|
|
|
(41,104
|
)
|
|
|
3.78
|
|
|
|
|
|
|
|
|
Outstanding at August 29, 2010
|
|
|
83,311
|
|
|
|
3.00
|
|
Granted
|
|
|
37,715
|
|
|
|
6.13
|
|
Vested
|
|
|
(22,478
|
)
|
|
|
2.46
|
|
Forfeited
|
|
|
(44,405
|
)
|
|
|
4.33
|
|
|
|
|
|
|
|
|
Outstanding at August 28, 2011
|
|
|
54,143
|
|
|
$
|
5.08
|
|
|
|
|
|
|
|
|
As of August 28, 2011, there was $95,877 in total unrecognized compensation cost related to
non-vested restricted stock compensation arrangements granted under the Plan. That cost is
expected to be recognized over a weighted average period of 1 year. The total intrinsic value
of restricted stock options that vested during the year ended August 28, 2011 was $119,190.
32
Income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
August 28,
|
|
|
August 29,
|
|
|
August 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
15,289
|
|
|
$
|
|
|
State
|
|
|
19,457
|
|
|
|
15,676
|
|
|
|
(9,971
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,457
|
|
|
|
30,965
|
|
|
|
(9,971
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
486,469
|
|
|
|
323,378
|
|
|
|
(72,577
|
)
|
State
|
|
|
|
|
|
|
4,246
|
|
|
|
(6,994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
486,469
|
|
|
|
327,624
|
|
|
|
(79,571
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
505,926
|
|
|
$
|
358,589
|
|
|
$
|
(89,542
|
)
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the federal income tax provision at the statutory rate with actual taxes
provided on earnings from continuing operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
August 28,
|
|
|
August 29,
|
|
|
August 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Ordinary federal income tax statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
(34.0
|
)%
|
State income taxes net of federal tax effect
|
|
|
2.0
|
|
|
|
2.0
|
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
Effective rate
|
|
|
36.0
|
%
|
|
|
36.0
|
%
|
|
|
(36.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes are provided for the temporary differences between the financial
reporting and tax basis of the Companys assets and liabilities. Temporary differences, net
operating loss carryforwards, and valuation allowances comprising the net deferred taxes on
the balance sheet are as follows:
|
|
|
|
|
|
|
|
|
|
|
August 28, 2011
|
|
|
August 29, 2010
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
86,764
|
|
|
$
|
78,998
|
|
Inventory valuation adjustments
|
|
|
54,026
|
|
|
|
26,262
|
|
Net operating loss carryforwards
|
|
|
767,705
|
|
|
|
827,896
|
|
Tax credit carryforwards
|
|
|
494,728
|
|
|
|
510,993
|
|
Stock option expense
|
|
|
174,551
|
|
|
|
151,244
|
|
Other
|
|
|
145,562
|
|
|
|
114,989
|
|
|
|
|
|
|
|
|
|
|
|
1,723,336
|
|
|
|
1,710,382
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
|
|
|
Tax depreciation and amortization
greater than book
|
|
|
(1,776,958
|
)
|
|
|
(1,279,768
|
)
|
|
|
|
|
|
|
|
Net deferred taxes
|
|
$
|
(53,622
|
)
|
|
$
|
430,614
|
|
|
|
|
|
|
|
|
|
|
Included in the balance sheet as:
|
|
|
|
|
|
|
|
|
Deferred tax assets current
|
|
|
254,439
|
|
|
|
171,713
|
|
Deferred tax assets long-term
|
|
|
|
|
|
|
258,901
|
|
Deferred tax liabilities long-term
|
|
|
(308,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred taxes
|
|
$
|
(53,622
|
)
|
|
$
|
430,614
|
|
|
|
|
|
|
|
|
33
Based on the long-term nature of its net operating loss carryforwards and the Companys recent
operating history and growth in fiscal 2011, management believes that it is more likely than
not that the Company will be able to generate taxable income in the future sufficient to
utilize these deductions and carryforwards, and accordingly no tax asset valuation allowance
is deemed necessary.
As of August 28, 2011, the Company had federal net operating loss carryforwards of
approximately $2.1 million expiring in 2021-2029. Also as of August 28, 2011, the Company had
$454,000 in federal alternative minimum tax (AMT) credit carryforward that has no expiration.
The AMT credits are available to offset future tax liabilities only to the extent that the
Company has regular tax liabilities in excess of AMT tax liabilities.
The Company maintains a 401(k) retirement savings plan that all employees are eligible
to participate in as well as a profit sharing plan. Profit sharing contributions are
discretionary and are based on Company results. Contributions charged to operations for
the profit sharing plan and matching contributions for the 401(k) plan for fiscal 2011,
2010 and 2009, were $239,463, $184,037 and $137,762, respectively.
8.
|
|
INFORMATION CONCERNING SALES TO MAJOR CUSTOMERS
|
The Company had sales to two customers that exceeded 10 percent of total sales during fiscal
years 2011, 2010 and 2009 as listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Customer # 1
|
|
$
|
16,804,000
|
|
|
$
|
11,922,000
|
|
|
$
|
9,652,000
|
|
Customer # 2
|
|
$
|
4,525,000
|
|
|
$
|
4,480,000
|
|
|
$
|
5,680,000
|
|
The Company had accounts receivable from customer #1 of $1,938,000 and $2,171,000 at August
28, 2011 and August 29, 2010, respectively. The Company had accounts receivable from customer
#2 of $607,000 and $633,000 at August 28, 2011 and August 29, 2010, respectively. Realization
of these receivables, sale of inventory, and its future operations could be significantly
affected by adverse changes in the financial condition or the Companys relationship with
these customers.
34
The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
|
$
|
899,423
|
|
|
$
|
637,493
|
|
|
$
|
(159,185
|
)
|
|
|
|
|
|
|
|
|
|
|
Denominator for earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares;
denominator for basic earnings
per share
|
|
|
2,825,921
|
|
|
|
2,801,210
|
|
|
|
2,789,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities;
employee and non-employee options
|
|
|
51,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive common shares;
denominator for diluted earnings
per share
|
|
|
2,877,064
|
|
|
|
2,801,210
|
|
|
|
2,789,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
.32
|
|
|
$
|
.23
|
|
|
$
|
(.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive earnings (loss) per share
|
|
$
|
.31
|
|
|
$
|
.23
|
|
|
$
|
(.06
|
)
|
|
|
|
|
|
|
|
|
|
|
Goodwill consists of costs resulting from business acquisitions which total $2,368,452 (net of
accumulated amortization of $344,812 recorded prior to the adoption of ASC 350
Goodwill and
Other Intangible Assets
).
35
EXHIBIT 10.24
Loan Number:
AMENDED AND RESTATED
REVOLVING CREDIT
PROMISSORY NOTE
|
|
|
|
|
|
$1,000,000.00
|
|
Eden Prairie, Minnesota
|
|
|
February 1, 2011
|
FOR VALUE RECEIVED, WSI Industries, Inc., a Minnesota corporation, (the Borrower) promises
to pay to the order of M&I Marshall & Ilsley Bank, a Wisconsin banking corporation, or any future
holder hereof (Lender), the principal sum of One Million and no/100 Dollars ($1,000,000.00), or
so much thereof as may be advanced and be outstanding pursuant to and subject to the restrictions
contained in, that certain Amended and Restated Loan Agreement between Borrower and Lender of even
date herewith (Loan Agreement), together with interest accruing from and after the date hereof
on the unpaid principal balance from time to time outstanding at a fluctuating annual interest rate
equal to the LIBOR Rate, as hereinafter defined, plus Three Hundred (300) basis points per year
(collectively the LIBOR Rate plus Three Hundred (300) basis points is the Note Rate). The Note
Rate shall change concurrently with each change in the LIBOR Rate. The Note Rate is not necessarily
the lowest rate charged by Lender on loans at any given time.
NOTICE:
Under no circumstances will
the Note Rate be less than Three and Seventy-five/One Hundredths percent (3.75%) per annum or more
than the maximum rate allowed by applicable law. Principal and interest due hereunder shall be
paid in immediately available funds as follows:
1.
Payments
. Interest only (at the Note Rate) on the principal balance outstanding
from time to time shall be paid on or before the first day of the first calendar month after the
date hereof, and on or before the first day of each and every month thereafter throughout the term
of this Note.
2.
Application of Payments
. Unless otherwise determined by Lender in its sole
discretion, all payments shall be applied first to interest, second to principal then due, third to
late charges (including any Default Rate Margin as defined below), if any, and fourth to any escrow
required under the Loan Documents, with the balance to be applied to principal then owing, provided
however, that if any advance made by the Lender as the result of a default on the part of the
Borrower under the terms of this Note or any instrument securing this Note is not repaid on demand,
any monies received, at the option of the Lender, may first be applied to repay such advances, plus
interest thereon at an interest rate equal to the sum of the Note Rate plus the Default Rate
Margin, and the balance, if any, shall be applied in accordance with the provisions hereof. Any
application of principal hereunder shall not reduce the periodic amounts due and payable as
provided in this Note.
3.
Interest Calculation
. Interest on this Note is computed on a 365/360 basis; that
is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the principal balance is
outstanding. All interest payable under this Note shall be computed using this method. This
calculation method results in a higher effective interest rate than the numeric interest rate
stated in this Note. If any payment received is less than the amount of interest due through the
effective date of receipt of such payment, Lender reserves the right to add any such deficiency to
principal.
4.
Payment Location
. If Lender does not require automatic withdrawal of payments from
Borrowers account as provided herein, all payments of principal and interest due hereunder shall
be paid to Lender at 11455 Viking Road, Eden Prairie, Minnesota 55344, Attention: David Orlady, or
to such other person or at such other address as Lender may from time to time direct.
5.
Maturity Date
. The entire outstanding balance of principal, if not sooner paid,
together with all accrued interest thereon, shall be due and payable on February 1, 2012.
6.
Loan Agreement
. The terms, covenants, conditions and agreements contained in all
other Loan Documents defined in that certain Loan Agreement (the Loan Agreement) by and between
Borrower, WSI Rochester, Inc. and Taurus Numeric Tool, Inc. (Guarantors) and Lender of even date
hereof, including but not limited to those certain Guaranties executed by Guarantors pursuant to
which Guarantors agreed to guarantee Borrowers obligations under this Note and the other Loan
Documents, are hereby made a part hereof to the same extent and effect as if the same were fully
set forth herein.
7.
Prepayment
. This Note may be prepaid at any time, in whole or in part, with out
premium or penalty.
8.
Interest Rate
. The interest rate on this Note is subject to change from time to
time based on changes in an independent index which is the one month British Bankers Association
(BBA) LIBOR and reported by a major news service selected by Lender (such as Reuters, Bloomberg or
Moneyline Telerate), set two (2) London business days prior to the Loan payment date and effective
on the first day of the accrual period to the last day, with settlement in arrears (the Index).
The Index is not necessarily the lowest rate charged by Lender on its loans. If the Index becomes
unavailable during the term of this Loan, Lender may designate a substitute index after notifying
Borrower. Lender will tell Borrower the current Index rate upon Borrowers request. The interest
rate change will not occur more often than each Loan payment date and will become effective without
notice to Borrower.
9.
Default
. A default under this Note shall occur if:
(a) there is a default in payment of any installment of principal and/or interest due
hereunder or any payments due pursuant to the Loan Documents; or
(b) there is a default in the performance by Borrower, any Guarantor or any grantor of a
mortgage, deed of trust, or other security in connection with this Note of any of the terms,
conditions or provisions contained herein other than those identified in subsection (a) above, or
contained in the Loan Documents (including, but not limited to, the Events of Default set forth in
the Loan Agreement), or contained in any document executed and/or delivered by Borrower, any
Guarantor, or any other individual or entity affiliated with Borrower and/or any Guarantor in
connection herewith, or contained in any other agreement between Borrower and/or any Guarantor and
Lender or between Borrower and/or any Guarantor and any other creditor; or
(c) Borrower or any Guarantor:
|
(i)
|
|
becomes insolvent or takes any action which constitutes an
admission of inability to pay its debts as they mature;
|
|
(ii)
|
|
makes an assignment for the benefit of creditors or to an agent
authorized to liquidate any substantial amount of its assets;
|
2
|
(iii)
|
|
becomes the subject of an order for relief within the
meaning of the United States Bankruptcy Code;
|
|
(iv)
|
|
files a petition in bankruptcy, or for reorganization, or to
effect a plan or other arrangement with creditors;
|
|
|
(v)
|
|
is adjudged a bankrupt;
|
|
(vi)
|
|
files an answer to a creditors petition, admitting the
material allegations thereof, for an adjudication of bankruptcy or for
reorganization or to effect a plan or other arrangement with creditors;
|
|
(vii)
|
|
applies to a court for the appointment of a receiver or a
custodian for any of its assets or proceedings;
|
|
(viii)
|
|
has filed against it an involuntary petition pursuant to the United States
Bankruptcy Code;
|
|
(ix)
|
|
has a receiver, trustee, custodian, liquidator or like officer
appointed to take custody, control or possession of any property subject to any
lien, encumbrance or security interest securing payment of this Note;
|
|
(x)
|
|
dies or becomes incapacitated, or is dissolved or ceases to
continue its business as a going concern;
|
|
(xi)
|
|
has filed against any collateral securing this Note any
foreclosure or forfeiture proceedings, whether by judicial proceedings,
self-help, repossession or otherwise, by any creditor of Borrower or any
governmental entity;
|
|
(xii)
|
|
has filed against it a judgment which is not satisfied or
bonded over within thirty (30) days after the entry thereof; or has issued
against it any attachments or garnishments or the filing of any lien which is
not discharged or bonded over within thirty (30) days after such issuance or
filing; or
|
(d) any representation, certification or warranty made or provided by or on behalf of Borrower
or any Guarantor to induce Lender to extend credit to Borrower hereunder, made or provided in the
Loan Documents or made or provided in any document delivered to Lender in conjunction with this
transaction is at anytime false, misleading or inaccurate, in any material respect; or
(e) upon the occurrence of a default under any of the Loan Documents (including, but not
limited to, the Events of Default set forth in the Loan Agreement), a default under any agreement
executed in connection with an interest rate swap or similar transaction between Borrower and
Lender, or upon the occurrence of a default under any loan, extension of credit, security
agreement, purchase or sale agreement, or any other agreement, in favor of any other creditor or
person that may materially affect any of Borrowers property or Borrowers ability to repay this
Note or perform Borrowers obligations under this Note or any of the Loan Documents; or
(f) upon any merger, consolidation, reorganization or other transaction or event that results
in any change in the managing member, general partner or majority shareholder of the Borrower,
and/or upon any change in ownership of twenty-five percent (25%) or more of the common stock,
membership units, limited partnership, limited liability partnership, or general partnership
interests, or other ownership
units of Borrower; or
3
(g) a material adverse change occurs in Borrowers or any Guarantors financial condition, or
Lender believes the prospect of payment or performance of this Note or the Guaranty is impaired, or
Lender in good faith believes itself to be insecure;
(h) Borrower or any Guarantor shall be in default under any other agreement with Lender or
with any other creditor (whether in connection with the Loan or otherwise) and any required notice
shall have been given and any time in which to cure the default shall have elapsed. For purposes
of this Section, the term Like-Owned Affiliates shall mean any Affiliate of Borrower that has the
same ultimate owner(s), whether directly or indirectly, as Borrower as of the date of any such
default. For purposes of this Section, the term Affiliate shall mean any person or entity that
controls, is controlled by, or is under common control with, Borrower as of the date of any such
default.
If Borrower fails to pay any installment of principal and/or interest when due or fails to
make any other payments when due under this Note or the Loan Documents (including, but not limited
to, any payments of real estate taxes or insurance required to be paid by Borrower), or if Borrower
or any Guarantor fails to perform any other obligation under this Note or the Loan Documents or if
Borrower, any of its Like-Owned Affiliates or any Guarantor shall otherwise be in default under
this Note or the Loan Documents, and such failure is not cured within the cure period, if any,
provided in this Section, then such failure shall constitute an Event of Default hereunder. If
any default (other than: (i) a default in payment of principal and/or interest or any other
payments required to be made under this Note or the Loan Documents including, but not limited to,
any payments of real estate taxes or insurance; or (ii) a default which is an Event of Default
under any of the Loan Documents for which a cure period has already been provided for under the
applicable document), is curable and if Borrower has not been given a notice of a breach of the
same provision of this Note within the preceding twelve (12) months, such default may be cured if
Borrower, after receiving written notice from Lender demanding cure of such default: (1) cures the
default within thirty (30) days or (2) if the cure requires more than thirty (30) days, immediately
initiates steps which Lender deems in Lenders sole discretion to be sufficient to cure the default
and thereafter Borrower continues to diligently pursue such cure and completes all reasonable and
necessary steps sufficient to cure such default as soon as reasonably practical.
Upon the occurrence of an Event of Default, the entire unpaid principal balance plus accrued
interest shall immediately become due and payable.
Upon the occurrence of an Event of Default, including failure to pay upon final maturity, the
interest rate on this Note shall be increased by adding a 5.000 percentage point margin (Default
Rate Margin) to the then applicable Note Rate. The Default Rate Margin shall also apply to each
succeeding interest rate change that would have applied had there been no occurrence of an Event of
Default. However, in no event will the interest rate exceed the maximum interest rate limitations
under applicable law.
10.
Waivers
. Borrower waives and renounces presentment, protest, demand and notice of
dishonor and any and all lack of diligence or delay in collection or endorsement hereof, and
expressly consents to any extension of time, release of any party liable for this obligation,
release of any security which may have been or which may hereafter be granted in connection
herewith, or any other indulgence or forbearance which may be made without notice to Borrower and
without in any way affecting the liability of Borrower. In all circumstances, the indebtedness due
hereunder shall be repaid without relief from any valuation or appraisement laws, which Borrower
hereby waives.
4
11.
Late Payments
. If any installment of principal and/or interest due under this
Note or any payment required under the Loan Documents is not fully paid within ten (10) days after
the due date thereof, Borrower shall pay to Lender a late charge equal to five percent (5%) of such
installment or payment, to compensate Lender for the extra cost of handling delinquent payments.
Neither the requirement that such late charge be paid, nor the payment of the late charge, will be
deemed to be a waiver of a default arising from the late payment. In addition, Borrower will pay a
fee to Lender of Thirty Dollars ($30.00) if Borrower makes a payment on this Note and the check or
preauthorized charge with which Borrower pays is later dishonored.
12.
Maximum Interest Rate
. Nothing contained herein nor any transaction related
hereto shall be construed or shall so operate either presently or prospectively: (a) to require the
payment of interest at a rate greater than is now lawful in such case to contract for, but shall
require payment of interest only to the extent of such lawful rate; or (b) to require the payment
or the doing of any act contrary to law; but if any clause or provision herein contained shall
otherwise so operate to invalidate this Note and/or the transaction related hereto, in whole or in
part, then only such clause(s) and provision(s) shall be held for naught as though not contained
herein (or if allowed by applicable law, limited to the extent necessary to make such clause(s) or
provision(s) enforceable, but then only to the extent such limited or modified enforcement is more
beneficial to Lender than having such clause(s) or provision(s) deemed struck) and the remainder of
this Note shall remain operative and in full force and effect.
If for any reason interest in excess of the amount as limited in the foregoing paragraph shall
have been paid hereunder, whether by reason of acceleration or otherwise, then in that event any
such excess interest shall constitute and be treated as a payment of principal hereunder and shall
operate to reduce such principal by the amount of such excess, or if in excess of the then
principal indebtedness, such excess shall be refunded.
13.
General Provisions
. The terms of this Note shall be binding upon Borrower, upon
Borrowers heirs, personal representatives, successors and assigns, and shall inure to the benefit
of Lender and its successors and assigns. Whenever used, the singular shall include the plural,
the plural the singular, and the use of any gender shall include all genders. The rights and
remedies of Lender as provided in this Note or any document securing this Note shall be cumulative
and concurrent, and may be pursued singularly, successively or together against Borrower, the
property described in the Security Documents or any document securing this Note or any other
security for the debt evidenced by this Note, at the discretion of Lender. If any part of this
Note cannot be enforced, this fact will not affect the rest of this Note. Lender may delay or
forego enforcing any of its rights or remedies under this Note without losing them. Borrower and
any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this
Note, and unless expressly stated in writing, no party who signs this Note, whether as maker, any
Guarantor, accommodation maker or endorser, shall be released from liability. All such parties
agree that Lender may renew or extend (repeatedly and for any length of time) this Loan or release
any party or any Guarantor or collateral; or impair, fail to realize upon or perfect Lenders
security interest in the collateral; and take any other action deemed necessary by Lender without
the consent of or notice to anyone. All such parties agree that Lender may modify this Loan
without the consent of or notice to anyone other than the party with whom the modification is made.
The obligations under this Note are joint and several. In the event of any inconsistencies
between this Note and any of the Loan Documents, any loan commitment or term sheet issued by Lender
in connection with the making of this Note, or other documents executed in connection with the
making of this Note, the terms of this Note shall control. Capitalized terms used and not defined
herein shall have the meanings given to them in the Loan Agreement.
5
14.
Governing Law
. This Note shall be governed by federal law applicable to Lender
and, to the extent not preempted by federal law, the laws of the State of Minnesota without regard
to conflicts of laws provisions. This Note has been accepted by Lender in the State of Minnesota.
15.
Attorneys Fees
. Borrower agrees that if, and as often as, this Note is placed in
the hands of an attorney for collection, or to defend or enforce any of Lenders rights hereunder
or under any document securing this Note, whether or not litigation is commenced, the undersigned
shall pay to Lender (subject to any limits under applicable law) Lenders reasonable attorneys
fees, together with all court costs and other expenses incurred or paid by Lender in connection
therewith.
16.
CHOICE OF VENUE
. BORROWER HEREBY AGREES THAT ALL ACTIONS OR PROCEEDINGS INITIATED
BY BORROWER AND ARISING DIRECTLY OR INDIRECTLY OUT OF THIS NOTE OR THE LOAN DOCUMENTS SHALL BE
LITIGATED IN THE DISTRICT COURT OF HENNEPIN COUNTY, MINNESOTA, OR AT LENDERS DISCRETION IN THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA. BORROWER HEREBY EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY LENDER IN SUCH
COURT. BORROWER WAIVES ANY CLAIM THAT HENNEPIN COUNTY, MINNESOTA OR THE UNITED STATES DISTRICT
COURT FOR THE DISTRICT OF MINNESOTA IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF
VENUE. THE EXCLUSIVE CHOICE OF FORUM FOR BORROWER SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO
PRECLUDE THE ENFORCEMENT, BY LENDER, OF ANY JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING, BY
LENDER, OF ANY ACTION TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE JURISDICTION, AND BORROWER
HEREBY WAIVES THE RIGHT, IF ANY, TO COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION.
17.
WAIVER OF JURY TRIAL
. LENDER AND BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY
TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE
OTHER.
18.
Notices
. Any notice or election required or permitted to be given or served by
Lender or Borrower hereunder to the other party shall be given in accordance with the Loan
Agreement.
19.
Automatic Payments; Right of Setoff
. Borrower hereby authorizes Lender
automatically to deduct from Borrowers account the amount of any payment due under this Note. If
the funds in the account are insufficient to cover any payment, Lender shall not be obligated to
advance funds to cover the payment. At any time and for any reasons, Lender may voluntarily
terminate such automatic payments. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Borrowers accounts with Lender (whether checking, savings, or other
account). This includes all accounts Borrower holds jointly with a third party and all accounts
Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any
trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against
any and all such accounts, and, at Lenders option, to administratively freeze all such accounts to
allow Lender to protect Lenders charge and setoff rights provided in this Section.
6
20.
Amended and Restated Note
. This Note amends and restates in its entirety that
certain Revolving Credit Promissory Note dated December 4, 2002, as previously amended, made by
Borrower in favor of Excel Bank Minnesota, predecessor in interest to Lender (Note No. 80607,
Account No. 200350) and is not in payment thereof.
IN WITNESS WHEREOF, the undersigned Borrower has executed this Note as of the date first above
written.
|
|
|
|
|
|
BORROWER:
WSI Industries, Inc.
|
|
|
By:
|
|
|
|
|
Name:
|
|
|
|
|
Title:
|
|
|
|
|
STATE OF MINNESOTA
|
)
|
|
) SS
|
COUNTY OF
|
)
|
On this
_____
day of March, 2011, before me appeared
, to me personally known,
who, being by me duly sworn, did say that he/she is the
of WSI Industries, Inc., a
Minnesota corporation, and that said instrument was signed on behalf of said company by its
authority, and said person acknowledged said instrument to be the free act and deed of said
company.
In Testimony Whereof, I have hereunto set my hand and affixed my official seal the day and
year first above written.
|
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
|
|
|
|
|
|
Notary Public, State of
|
|
|
|
|
|
|
|
|
|
|
|
My Commission Expires:
|
|
|
|
|
|
|
|
|
|
[SEAL]
7
EXHIBIT 10.25
AMENDED AND RESTATED
SECURITY AGREEMENT
Date: February 1, 2011
DEBTOR:
WSI Industries, Inc., a Minnesota corporation
Address:
213 Chelsea Road, Monticello, MN 55362
State Charter No
.: K-680
SECURED PARTY:
M&I Marshall & Ilsley Bank
Address:
11455 Viking Drive, Eden Prairie, MN 55344
1.
OBLIGATIONS SECURED
. This Agreement secures the following (called the Obligations):
All debts, liabilities and obligations of every type and description which the Debtor may
now or at any time owe to the Secured Party, including but not limited to all principal,
interest, and other charges, fees, expenses and amounts, and all notes, guaranties,
agreements, and other writings in favor of the Secured Party, whether now existing or
hereafter arising, direct or indirect, due or to become due, absolute or contingent, primary
or secondary, liquidated or unliquidated, independent, joint, several, or joint and several.
2.
SECURITY INTEREST.
To secure the payment and performance of the Obligations, the Debtor grants
the Secured Party a security interest (the Security Interest) in, and assigns to the Secured
Party, the following property (called the Collateral):
All inventory of the Debtor, and all returns of such inventory, and all warehouse receipts,
bills of lading and other documents of title covering such inventory, whether now existing
or hereafter arising, whether now owned or hereafter acquired;
All equipment of the Debtor, including but not limited to all accessions, accessories,
attachments, fittings, increases, parts, repairs, returns, renewals and substitutions of all
or any part thereof, and all warehouse receipts, bills of lading and other documents
covering such equipment, whether now existing or hereafter arising, whether now owned or
hereafter acquired;
All accounts (including but not limited to all health-care-insurance receivables),
instruments, chattel paper, investment property, letter of credit rights, letters of credit,
other rights to payment, documents, deposit accounts, money, patents, patent applications,
trademarks, trademark applications, copyrights, copyright applications, trade names, other
names, software, payment intangibles, and other general intangibles of the Debtor, together
with all good will related to the foregoing property and all rights, liens, security
interests and other interests which the Debtor may at any time have by law or agreement
against any account debtor, issuer or obligor obligated to make any
such payment or against any of the property of such account debtor, issuer, or obligor, and
all supporting obligations relating to the foregoing, whether now existing or hereafter
arising, whether now owned or hereafter acquired;
All other assets of the Debtor, not described above; and
All products and proceeds of the foregoing property, including without limitation all
accounts, instruments, chattel paper, investment property, letter of credit rights, letters
of credit, other rights to payment, documents, deposit accounts, money, insurance proceeds
and general intangibles related to the foregoing property, and all refunds of insurance
premiums due or to become due under all insurance policies covering the foregoing property.
3.
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
. The Debtor
represents and warrants to the Secured Party and agrees as follows:
a. The Debtor is a Minnesota corporation and the address of the Debtors chief executive
office is shown at the beginning of this Agreement. The Debtor has not used any trade name,
assumed name, or other name except the Debtors name stated above. The Debtor shall not
change its state of organization without the Secured Partys prior written consent. The
Debtor shall give the Secured Party prior written notice of any change in such address or
the Debtors name or if the Debtor uses any other name. The Debtor has authority to execute
and perform this Agreement.
b. If any Collateral is or will become a fixture, the record owner of the real estate is WSI
Industries, Inc. and the legal description of the real estate is set forth on the attached
Exhibit A.
c. Except as set forth in any existing or future agreement executed by the Secured Party:
the Debtor is the owner of the Collateral, or will be the owner of the Collateral hereafter
acquired, free of all security interests, liens and encumbrances other than the Security
Interest and any other security interest of the Secured Party; and except for certain
security interests granted in favor of lessors of leased equipment, the Debtor shall not
permit any security interest, lien or encumbrance, other than the Security Interest and any
other security interest of the Secured Party, to attach to any Collateral without the prior
written consent of the Secured Party; the Debtor shall defend the Collateral against the
claims and demands of all persons and entities other than the Secured Party, and shall
promptly pay all taxes, assessments and other government charges upon or against the Debtor,
any Collateral and the Security Interest; and no financing statement covering any Collateral
is on file in any public office. If any Collateral is or will become a fixture the Debtor,
at the request of the Secured Party, shall furnish the Secured Party with a statement or
statements executed by all persons and entities who have or claim an interest in the real
estate, in a form acceptable to the Secured Party, which statement or statements shall
provide that such persons and entities consent to the Security Interest.
-2-
d. The Debtor shall not sell or otherwise dispose of any Collateral or any interest therein
without the prior written consent of the Secured Party, which consent shall not be
unreasonably withheld, except that, until the occurrence of an Event of Default or the
revocation by the Secured Party of the Debtors right to do so, the Debtor (i) may sell or
lease any Collateral constituting inventory in the ordinary course of business at prices
constituting the fair market value thereof, or (ii) sell or dispose of collateral as
otherwise permitted by the Loan Agreement between Secured Party and Debtor of even date
herewith. For purposes of this Agreement, a transfer in partial or total satisfaction of a
debt, obligation or liability shall not constitute a sale or lease in the ordinary course of
business.
e. Each account, instrument, investment property, chattel paper, letter-of-credit right,
letter of credit, other right to payment, document, and general intangible constituting
Collateral is, or will be when acquired, the valid, genuine and legally enforceable
obligation of the account debtor or other issuer or obligor named therein or in the Debtors
records pertaining thereto as being obligated to pay such obligation, subject to no defense,
setoff or counterclaim. The Debtor shall not, without the prior written consent of the
Secured Party, agree to any material modification or amendment of any such obligation or
agree to any subordination or cancellation of any such obligation.
f. Other than inventory in transit and motor vehicles in use, all tangible Collateral shall
be located at the Debtors address stated above and no such Collateral shall be located at
any other address without the prior written consent of the Secured Party.
g. The Debtor shall: (i) keep all tangible Collateral in good condition and repair,
normal depreciation excepted; (ii) from time to time replace any worn, broken or defective
parts thereof; (iii) promptly notify the Secured Party of any loss of or material damage to
any Collateral or of any adverse change in the prospect of payment of any account,
instrument, chattel paper, letter of credit other right to payment or general intangible
constituting Collateral; (iv) not permit any Collateral to be used or kept for any unlawful
purpose or in violation of any federal, state or local law; (v) keep all tangible Collateral
insured in such amounts, against such risks and in such companies as shall be acceptable to
the Secured Party, with lender loss payable clauses in favor of the Secured Party to the
extent of its interest in form acceptable to the Secured Party (including without limitation
a provision for at least 30 days prior written notice to the Secured Party of any
cancellation or modification of such insurance), and deliver policies or certificates of
such insurance to the Secured Party; (vi) at the Debtors chief executive office, keep
accurate and complete records pertaining to the Collateral and the Debtors financial
condition, business and property, and Provide the Secured Party such periodic reports
concerning the Collateral and the Debtors financial condition, business and property as the
Secured Party may from time to time request; (vii) at all reasonable times permit the
Secured Party and its representatives to examine and inspect any Collateral, and to examine,
inspect and copy the Debtors records pertaining to the
Collateral and the Debtors financial condition, business and property; and (viii) at the
Secured Partys request, promptly execute, endorse and deliver such financing statements and
other instruments, documents, control agreements, chattel paper and writings and take such
other actions deemed by the Secured Party to be necessary or desirable to establish,
protect, perfect or enforce the Security Interest and the rights of the Secured Party under
this Agreement and applicable law, and pay all costs of filing financing statements and
other writings in all public offices where filing is deemed by the Secured Party to be
necessary or desirable.
-3-
h. The Debtor authorizes the Secured Party to file all of the Secured Partys financing
statements and amendments to financing statement, and all terminations of the filings of
other secured parties, all with respect to the Collateral, in such form and substance as the
Secured Party, in its sole discretion, may determine.
4.
COLLECTION RIGHTS.
At any time after an Event of Default, the Secured Party may, and at
the request of the Secured Party the Debtor shall, promptly notify any account debtor, issuer or
obligor of an account, instrument, investment property, chattel paper, letter-of-credit right,
letter of credit, other right to payment or general intangible constituting Collateral that the
same has been assigned to the Secured Party and direct such account debtor, issuer or obligor to
make all future payments to the Secured Party. In addition, at the request of the Secured Party,
the Debtor shall deposit in a collateral account designated by the Secured Party all proceeds
constituting Collateral, in their original form received (with any necessary endorsement), within
one business day after receipt of such proceeds by the Debtor. Until the Debtor makes each such
deposit, the Debtor will hold all such proceeds separately in trust for the Secured Party for
deposit in such collateral account, and will not commingle any such proceeds with any other
property. The Debtor shall have no right to withdraw any funds from such collateral account, and
the Debtor shall have no control over such collateral account. Such collateral account and all
funds at any time therein shall constitute Collateral under this Agreement. Before or upon final
collection of any funds in such collateral account, the Secured Party, at its discretion, may
release any such funds to the Debtor or any account of the Debtor or apply any such funds to the
Obligations whether or not then due. Any release of funds to the Debtor or any account of the
Debtor shall not prevent the Secured Party from subsequently applying any funds to the
Obligations. All items credited to such collateral account and subsequently returned and all
other costs, fees and charges of the Secured Party in connection with such collateral account may
be charged by the Secured Party to any account of the Debtor, and the Debtor shall pay the Secured
Party all such amounts on demand.
5.
LIMITED POWER OF ATTORNEY
. If the Debtor at any time fails to perform or observe any
agreement herein, the Secured Party, in the name and on behalf of the Debtor or, at its option, in
its own name, may perform or observe such agreement and take any action which the Secured Party
may deem necessary or desirable to cure or correct such failure. The Debtor irrevocably
authorizes Secured Party and grants the Secured Party a limited power of attorney in the name and
on behalf of the Debtor or, at its option, in its own name, to collect, receive, receipt for,
create, prepare, complete, execute, endorse, deliver and file any and all financing statements,
control agreements, insurance applications, remittances, instruments,
documents, chattel paper and other writings, to grant any extension to, compromise, settle, waive,
notify, amend, adjust, change and release any obligation of any account debtor, issuer, obligor,
insurer or other person or entity pertaining to any Collateral, to demand terminations of other
security interests in any of the Collateral and to take any other action deemed by the Secured
Party to be necessary or desirable to establish, perfect, protect or enforce the Security
Interest. All of the Secured Partys advances, fees, charges, costs and expenses, including but
not limited to audit fees and expenses and reasonable attorneys fees and legal expenses, in
connection with the Obligations and in the protection and exercise of any rights or remedies
hereunder, together with interest thereon at the highest rate then applicable to any of the
Obligations, shall be secured hereunder and shall be paid by the Debtor to the Secured Party on
demand.
-4-
6.
EVENTS OF DEFAULT
. The occurrence of any of the following events shall constitute an
Event of Default: (a) any breach or default in the payment or performance of any of the
Obligations; or (b) any breach or default under the terms of this Agreement or any other note,
obligation, mortgage, deed of trust, assignment, guaranty, other agreement, or other writing
heretofore, herewith or hereafter existing to which the Debtor or any maker, endorser, guarantor
or surety of any of the Obligations or any other person or entity providing security for any of
the Obligations or for any guaranty of any of the Obligations is a party; or (c) the insolvency,
dissolution, liquidation, merger or consolidation of the Debtor or any such maker, endorser,
guarantor, surety or other person or entity; or (d) any appointment of a receiver, trustee or
similar officer of any property of the Debtor or any such maker, endorser, guarantor, surety or
other person or entity; or (e) any assignment for the benefit of creditors of the Debtor or any
such maker, endorser, guarantor, surety or other person or entity; or (f) any commencement of any
proceeding under any bankruptcy, insolvency, receivership, dissolution, liquidation or similar law
by or against the Debtor or any such maker, endorser, guarantor, surety or other person or entity;
or (g) the sale, lease or other disposition (whether in one or more transactions) to one or more
persons or entities of all or a substantial part of the assets of the Debtor or any such maker,
endorser, guarantor, surety or other person or entity; or (h) the Debtor or any such maker,
endorser, guarantor, surety or other person or entity takes any action to go out of business, or
to revoke or terminate any agreement, liability or security in favor of the Secured Party; or (i)
the entry of any judgment or other order for the payment of money in the amount of $50,000.00 or
more against the Debtor or any such maker, endorser, guarantor, surety or any other person or
entity, and the continuance of such judgment, or order unsatisfied and in effect for any period of
60 consecutive days without a stay of execution; or j) the issuance or levy of any writ, warrant,
attachment, garnishment, execution or other process against any property of the Debtor or any such
maker, endorser, guarantor, surety or any other person or entity; or (k) the attachment of any tax
lien to any property of the Debtor or any such maker, endorser, guarantor, surety or other person
or entity; or (1) any statement, representation or warranty made by the Debtor or any such maker,
endorser, guarantor, surety or other person or entity (or any representative of the Debtor or any
such maker, endorser, guarantor, surety or other person or entity) to the Secured Party at any
time shall be incorrect or misleading in any material respect when made; or (m) there is a
material adverse change in the condition (financial or otherwise), business or property of the
Debtor or any such maker, endorser, guarantor, surety or other person or
entity; or (n) the Secured Party shall in good faith believe that the prospect for due and
punctual payment or performance of any of the Obligations, this Agreement or any other note,
obligation, mortgage, deed of trust, assignment, guaranty, or other agreement heretofore, herewith
or hereafter given to or acquired by the Secured Party in connection with any of the Obligations
is impaired.
-5-
7.
REMEDIES.
Upon the commencement of any proceeding under any bankruptcy law by or against
the Debtor or any such maker, endorser, guarantor, surety or other person or entity, all
Obligations automatically shall become immediately due and payable in full, without declaration,
presentment, or other notice or demand, all of which are hereby waived by the Debtor. In
addition, upon the occurrence of any Event of Default and at any time thereafter, the Secured
Party may exercise any one or more of the following rights and remedies: (a) declare all
Obligations to be immediately due and payable in full, and the same shall thereupon be immediately
due and payable in full, without presentment or other notice or demand, all of which are hereby
waived by the Debtor; (b) require the Debtor to assemble all or any part of the Collateral and
make it available to the Secured Party at a place to be designated by the Secured Party which is
reasonably convenient to both parties; (c) exercise and enforce any and all rights and remedies
available upon default under this Agreement, the Minnesota Uniform Commercial Code, as amended
from time to time (the UCC), and any other applicable agreements and laws. If notice to the
Debtor of any intended disposition of Collateral or other action is required, such notice shall be
deemed reasonably and properly given if mailed by regular or certified mail, postage prepaid, to
the Debtor at the address stated at the beginning of this Agreement or at the most recent address
shown in the Secured Partys records, at least 10 days prior to the action described in such
notice. The Debtor consents to the personal jurisdiction of the state and federal courts located
in the State of Minnesota in connection with any controversy related to this Agreement, the
Collateral, the Security Interest or any of the Obligations, waives any argument that venue in
such forums is not convenient, and agrees that any litigation initiated by the Debtor against the
Secured Party in connection with this Agreement, the Collateral, the Security Interest or any of
the Obligations shall be venued in either the District Court of Hennepin County, Minnesota or
the United States District Court, District of Minnesota, Fourth Division.
8.
MISCELLANEOUS
. All terms in this Agreement that are defined in the UCC shall have the
meanings set forth in the UCC, and such meanings shall automatically change at the time that
any amendment to the UCC, which changes such meanings, shall become effective. A carbon,
photographic or other reproduction of this Agreement is sufficient as a financing statement.
No provision of this Agreement can be waived, modified, amended, abridged, supplemented,
terminated or discharged and the Security Interest cannot be released or terminated, except by
a writing duly executed by the Secured Party. A waiver shall be effective only in the
specific instance and for the specific purpose given. No delay or failure to act shall
preclude the exercise or enforcement of any of the Secured Partys rights or remedies. All
rights and remedies of the Secured Party shall be cumulative and may be exercised singularly,
concurrently or successively at the Secured Partys option, and the exercise or enforcement of
any one such right or remedy shall not be a condition to or bar the exercise or enforcement of
any other. No notice or other
communication by the Debtor to the Secured Party, which relates to any of the Obligations, the
Security Interest or the Collateral, shall be effective until it is received by the Secured
Party at the Secured Partys address above. This Agreement shall bind and benefit the Debtor
and the Secured Party and their respective heirs, representatives, successors and assigns and
shall take effect when executed by the Debtor and delivered to the Secured Party, and the
Debtor waives notice of the Secured Partys acceptance hereof. If any provision or
application of this Agreement is held unlawful or unenforceable in any respect, such
illegality or unenforceability shall not affect other provisions or applications which can be
given effect, and this Agreement shall be construed as if the unlawful or unenforceable
provision or application had never been contained herein or prescribed hereby. All
representations and warranties contained in this Agreement shall survive the execution,
delivery and performance of this Agreement and the creation, payment and performance of the
Obligations. This Agreement and the rights and duties of the parties shall be governed by and
construed in accordance with the internal laws of the State of Minnesota (excluding conflict
of law rules).
-6-
9.
AMENDED AND RESTATED SECURITY AGREEMENT.
This Security Agreement amends and restates in its
entirety that certain Security Agreement dated December 4, 2002, made by Debtor in favor of
Excel Bank Minnesota, predecessor in interest to Lender.
THE DEBTOR REPRESENTS AND WARRANTS TO THE SECURED PARTY AND AGREES THAT THE DEBTOR HAS READ ALL OF
THIS AGREEMENT AND UNDERSTANDS ALL OF THE PROVISIONS OF THIS AGREEMENT.
|
|
|
|
|
|
|
WSI INDUSTRIES, INC.
,
a Minnesota corporation
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
-7-
EXHIBIT A
LEGAL DESCRIPTION
Lot 1, Block 1, Remmele Addition, Wright County, Minnesota
-8-
EXHIBIT 10.26
AMENDED AND RESTATED
SECURITY AGREEMENT
Date: February 1, 2011
DEBTOR:
Taurus Numeric Tool, Inc., a Minnesota corporation
Address:
213 Chelsea Road, Monticello, MN 55362
State Charter No
.: 5U-184
SECURED PARTY:
M&I Marshall & Ilsley Bank
Address:
11455 Viking Drive, Eden Prairie, MN 55344
1.
OBLIGATIONS SECURED
. This Agreement secures the following (called the Obligations):
All debts, liabilities and obligations of every type and description which the Debtor may
now or at any time owe to the Secured Party, including but not limited to all principal,
interest, and other charges, fees, expenses and amounts, and all notes, guaranties,
agreements, and other writings in favor of the Secured Party, whether now existing or
hereafter arising, direct or indirect, due or to become due, absolute or contingent, primary
or secondary, liquidated or unliquidated, independent, joint, several, or joint and several.
2.
SECURITY INTEREST.
To secure the payment and performance of the Obligations, the Debtor grants
the Secured Party a security interest (the Security Interest) in, and assigns to the Secured
Party, the following property (called the Collateral):
All inventory of the Debtor, and all returns of such inventory, and all warehouse receipts,
bills of lading and other documents of title covering such inventory, whether now existing
or hereafter arising, whether now owned or hereafter acquired;
All equipment of the Debtor, including but not limited to all accessions, accessories,
attachments, fittings, increases, parts, repairs, returns, renewals and substitutions of all
or any part thereof, and all warehouse receipts, bills of lading and other documents
covering such equipment, whether now existing or hereafter arising, whether now owned or
hereafter acquired;
All accounts (including but not limited to all health-care-insurance receivables),
instruments, chattel paper, investment property, letter of credit rights, letters of credit,
other rights to payment, documents, deposit accounts, money, patents, patent applications,
trademarks, trademark applications, copyrights, copyright applications, trade names, other
names, software, payment intangibles, and other general intangibles of the Debtor, together
with all good will related to the foregoing property and all rights, liens, security
interests and other interests which the Debtor may at any time have by law or agreement
against any account debtor, issuer or obligor obligated to make any
such payment or against any of the property of such account debtor, issuer, or obligor, and
all supporting obligations relating to the foregoing, whether now existing or hereafter
arising, whether now owned or hereafter acquired;
All other assets of the Debtor, not described above; and
All products and proceeds of the foregoing property, including without limitation all
accounts, instruments, chattel paper, investment property, letter of credit rights, letters
of credit, other rights to payment, documents, deposit accounts, money, insurance proceeds
and general intangibles related to the foregoing property, and all refunds of insurance
premiums due or to become due under all insurance policies covering the foregoing property.
3.
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
. The Debtor
represents and warrants to the Secured Party and agrees as follows:
a. The Debtor is a Minnesota corporation and the address of the Debtors chief executive
office is shown at the beginning of this Agreement. The Debtor has not used any trade name,
assumed name, or other name except the Debtors name stated above. The Debtor shall not
change its state of organization without the Secured Partys prior written consent. The
Debtor shall give the Secured Party prior written notice of any change in such address or
the Debtors name or if the Debtor uses any other name. The Debtor has authority to execute
and perform this Agreement.
b. If any Collateral is or will become a fixture, the record owner of the real estate is WSI
Industries, Inc. and the legal description of the real estate is set forth on the attached
Exhibit A.
c. Except as set forth in any existing or future agreement executed by the Secured Party:
the Debtor is the owner of the Collateral, or will be the owner of the Collateral hereafter
acquired, free of all security interests, liens and encumbrances other than the Security
Interest and any other security interest of the Secured Party; and except for that certain
security interest in favor of Rodney G. Winter, which has been subordinated to the Security
Interest in favor of Secured Party, the Debtor shall not permit any security interest, lien
or encumbrance, other than the Security Interest and any other security interest of the
Secured Party, to attach to any Collateral without the prior written consent of the Secured
Party; the Debtor shall defend the Collateral against the claims and demands of all persons
and entities other than the Secured Party, and shall promptly pay all taxes, assessments and
other government charges upon or against the Debtor, any Collateral and the Security
Interest; and no financing statement covering any Collateral is on file in any public
office. If any Collateral is or will become a fixture the Debtor, at the request of the
Secured Party, shall furnish the Secured Party with a statement or statements executed by
all persons and entities who have or claim an interest in the real estate, in a form
acceptable to the Secured Party, which statement or statements shall provide that such
persons and entities consent to the Security Interest.
-2-
d. The Debtor shall not sell or otherwise dispose of any Collateral or any interest therein
without the prior written consent of the Secured Party, which consent shall not be
unreasonably withheld, except that, until the occurrence of an Event of Default or the
revocation by the Secured Party of the Debtors right to do so, the Debtor (i) may sell or
lease any Collateral constituting inventory in the ordinary course of business at prices
constituting the fair market value thereof, or (ii) sell or dispose of collateral as
otherwise permitted by the Loan Agreement between Secured Party and Debtor of even date
herewith. For purposes of this Agreement, a transfer in partial or total satisfaction of a
debt, obligation or liability shall not constitute a sale or lease in the ordinary course of
business.
e. Each account, instrument, investment property, chattel paper, letter-of-credit right,
letter of credit, other right to payment, document, and general intangible constituting
Collateral is, or will be when acquired, the valid, genuine and legally enforceable
obligation of the account debtor or other issuer or obligor named therein or in the Debtors
records pertaining thereto as being obligated to pay such obligation, subject to no defense,
setoff or counterclaim. The Debtor shall not, without the prior written consent of the
Secured Party, agree to any material modification or amendment of any such obligation or
agree to any subordination or cancellation of any such obligation.
f. Other than inventory in transit and motor vehicles in use, all tangible Collateral shall
be located at the Debtors address stated above and no such Collateral shall be located at
any other address without the prior written consent of the Secured Party.
g. The Debtor shall: (i) keep all tangible Collateral in good condition and repair,
normal depreciation excepted; (ii) from time to time replace any worn, broken or defective
parts thereof; (iii) promptly notify the Secured Party of any loss of or material damage to
any Collateral or of any adverse change in the prospect of payment of any account,
instrument, chattel paper, letter of credit other right to payment or general intangible
constituting Collateral; (iv) not permit any Collateral to be used or kept for any unlawful
purpose or in violation of any federal, state or local law; (v) keep all tangible Collateral
insured in such amounts, against such risks and in such companies as shall be acceptable to
the Secured Party, with lender loss payable clauses in favor of the Secured Party to the
extent of its interest in form acceptable to the Secured Party (including without limitation
a provision for at least 30 days prior written notice to the Secured Party of any
cancellation or modification of such insurance), and deliver policies or certificates of
such insurance to the Secured Party; (vi) at the Debtors chief executive office, keep
accurate and complete records pertaining to the Collateral and the Debtors financial
condition, business and property, and Provide the Secured Party such periodic reports
concerning the Collateral and the Debtors financial condition, business and property as the
Secured Party may from time to time request; (vii) at all reasonable times permit the
Secured Party and its representatives to examine and inspect any Collateral, and to examine,
inspect and copy the Debtors records pertaining to the
Collateral and the Debtors financial condition, business and property; and (viii) at the
Secured Partys request, promptly execute, endorse and deliver such financing statements and
other instruments, documents, control agreements, chattel paper and writings and take such
other actions deemed by the Secured Party to be necessary or desirable to establish,
protect, perfect or enforce the Security Interest and the rights of the Secured Party under
this Agreement and applicable law, and pay all costs of filing financing statements and
other writings in all public offices where filing is deemed by the Secured Party to be
necessary or desirable.
-3-
h. The Debtor authorizes the Secured Party to file all of the Secured Partys financing
statements and amendments to financing statement, and all terminations of the filings of
other secured parties, all with respect to the Collateral, in such form and substance as the
Secured Party, in its sole discretion, may determine.
4.
COLLECTION RIGHTS.
At any time after an Event of Default, the Secured Party may, and at
the request of the Secured Party the Debtor shall, promptly notify any account debtor, issuer or
obligor of an account, instrument, investment property, chattel paper, letter-of-credit right,
letter of credit, other right to payment or general intangible constituting Collateral that the
same has been assigned to the Secured Party and direct such account debtor, issuer or obligor to
make all future payments to the Secured Party. In addition, at the request of the Secured Party,
the Debtor shall deposit in a collateral account designated by the Secured Party all proceeds
constituting Collateral, in their original form received (with any necessary endorsement), within
one business day after receipt of such proceeds by the Debtor. Until the Debtor makes each such
deposit, the Debtor will hold all such proceeds separately in trust for the Secured Party for
deposit in such collateral account, and will not commingle any such proceeds with any other
property. The Debtor shall have no right to withdraw any funds from such collateral account, and
the Debtor shall have no control over such collateral account. Such collateral account and all
funds at any time therein shall constitute Collateral under this Agreement. Before or upon final
collection of any funds in such collateral account, the Secured Party, at its discretion, may
release any such funds to the Debtor or any account of the Debtor or apply any such funds to the
Obligations whether or not then due. Any release of funds to the Debtor or any account of the
Debtor shall not prevent the Secured Party from subsequently applying any funds to the
Obligations. All items credited to such collateral account and subsequently returned and all
other costs, fees and charges of the Secured Party in connection with such collateral account may
be charged by the Secured Party to any account of the Debtor, and the Debtor shall pay the Secured
Party all such amounts on demand.
5.
LIMITED POWER OF ATTORNEY
. If the Debtor at any time fails to perform or observe any
agreement herein, the Secured Party, in the name and on behalf of the Debtor or, at its option, in
its own name, may perform or observe such agreement and take any action which the Secured Party
may deem necessary or desirable to cure or correct such failure. The Debtor irrevocably
authorizes Secured Party and grants the Secured Party a limited power of attorney in the name and
on behalf of the Debtor or, at its option, in its own name, to collect, receive, receipt for,
create, prepare, complete, execute, endorse, deliver and file any and all financing statements,
control agreements, insurance applications, remittances, instruments,
documents, chattel paper and other writings, to grant any extension to, compromise, settle, waive,
notify, amend, adjust, change and release any obligation of any account debtor, issuer, obligor,
insurer or other person or entity pertaining to any Collateral, to demand terminations of other
security interests in any of the Collateral and to take any other action deemed by the Secured
Party to be necessary or desirable to establish, perfect, protect or enforce the Security
Interest. All of the Secured Partys advances, fees, charges, costs and expenses, including but
not limited to audit fees and expenses and reasonable attorneys fees and legal expenses, in
connection with the Obligations and in the protection and exercise of any rights or remedies
hereunder, together with interest thereon at the highest rate then applicable to any of the
Obligations, shall be secured hereunder and shall be paid by the Debtor to the Secured Party on
demand.
-4-
6.
EVENTS OF DEFAULT
. The occurrence of any of the following events shall constitute an
Event of Default: (a) any breach or default in the payment or performance of any of the
Obligations; or (b) any breach or default under the terms of this Agreement or any other note,
obligation, mortgage, deed of trust, assignment, guaranty, other agreement, or other writing
heretofore, herewith or hereafter existing to which the Debtor or any maker, endorser, guarantor
or surety of any of the Obligations or any other person or entity providing security for any of
the Obligations or for any guaranty of any of the Obligations is a party; or (c) the insolvency,
dissolution, liquidation, merger or consolidation of the Debtor or any such maker, endorser,
guarantor, surety or other person or entity; or (d) any appointment of a receiver, trustee or
similar officer of any property of the Debtor or any such maker, endorser, guarantor, surety or
other person or entity; or (e) any assignment for the benefit of creditors of the Debtor or any
such maker, endorser, guarantor, surety or other person or entity; or (f) any commencement of any
proceeding under any bankruptcy, insolvency, receivership, dissolution, liquidation or similar law
by or against the Debtor or any such maker, endorser, guarantor, surety or other person or entity;
or (g) the sale, lease or other disposition (whether in one or more transactions) to one or more
persons or entities of all or a substantial part of the assets of the Debtor or any such maker,
endorser, guarantor, surety or other person or entity; or (h) the Debtor or any such maker,
endorser, guarantor, surety or other person or entity takes any action to go out of business, or
to revoke or terminate any agreement, liability or security in favor of the Secured Party; or (i)
the entry of any judgment or other order for the payment of money in the amount of $50,000.00 or
more against the Debtor or any such maker, endorser, guarantor, surety or any other person or
entity, and the continuance of such judgment, or order unsatisfied and in effect for any period of
60 consecutive days without a stay of execution; or j) the issuance or levy of any writ, warrant,
attachment, garnishment, execution or other process against any property of the Debtor or any such
maker, endorser, guarantor, surety or any other person or entity; or (k) the attachment of any tax
lien to any property of the Debtor or any such maker, endorser, guarantor, surety or other person
or entity; or (1) any statement, representation or warranty made by the Debtor or any such maker,
endorser, guarantor, surety or other person or entity (or any representative of the Debtor or any
such maker, endorser, guarantor, surety or other person or entity) to the Secured Party at any
time shall be incorrect or misleading in any material respect when made; or (m) there is a
material adverse change in the condition (financial or otherwise), business or property of the
Debtor or any such maker, endorser, guarantor, surety or other person or
entity; or (n) the Secured Party shall in good faith believe that the prospect for due and
punctual payment or performance of any of the Obligations, this Agreement or any other note,
obligation, mortgage, deed of trust, assignment, guaranty, or other agreement heretofore, herewith
or hereafter given to or acquired by the Secured Party in connection with any of the Obligations
is impaired.
-5-
7.
REMEDIES.
Upon the commencement of any proceeding under any bankruptcy law by or against
the Debtor or any such maker, endorser, guarantor, surety or other person or entity, all
Obligations automatically shall become immediately due and payable in full, without declaration,
presentment, or other notice or demand, all of which are hereby waived by the Debtor. In
addition, upon the occurrence of any Event of Default and at any time thereafter, the Secured
Party may exercise any one or more of the following rights and remedies: (a) declare all
Obligations to be immediately due and payable in full, and the same shall thereupon be immediately
due and payable in full, without presentment or other notice or demand, all of which are hereby
waived by the Debtor; (b) require the Debtor to assemble all or any part of the Collateral and
make it available to the Secured Party at a place to be designated by the Secured Party which is
reasonably convenient to both parties; (c) exercise and enforce any and all rights and remedies
available upon default under this Agreement, the Minnesota Uniform Commercial Code, as amended
from time to time (the UCC), and any other applicable agreements and laws. If notice to the
Debtor of any intended disposition of Collateral or other action is required, such notice shall be
deemed reasonably and properly given if mailed by regular or certified mail, postage prepaid, to
the Debtor at the address stated at the beginning of this Agreement or at the most recent address
shown in the Secured Partys records, at least 10 days prior to the action described in such
notice. The Debtor consents to the personal jurisdiction of the state and federal courts located
in the State of Minnesota in connection with any controversy related to this Agreement, the
Collateral, the Security Interest or any of the Obligations, waives any argument that venue in
such forums is not convenient, and agrees that any litigation initiated by the Debtor against the
Secured Party in connection with this Agreement, the Collateral, the Security Interest or any of
the Obligations shall be venued in either the District Court of Hennepin County, Minnesota or
the United States District Court, District of Minnesota, Fourth Division.
8.
MISCELLANEOUS
. All terms in this Agreement that are defined in the UCC shall have the
meanings set forth in the UCC, and such meanings shall automatically change at the time that
any amendment to the UCC, which changes such meanings, shall become effective. A carbon,
photographic or other reproduction of this Agreement is sufficient as a financing statement.
No provision of this Agreement can be waived, modified, amended, abridged, supplemented,
terminated or discharged and the Security Interest cannot be released or terminated, except by
a writing duly executed by the Secured Party. A waiver shall be effective only in the
specific instance and for the specific purpose given. No delay or failure to act shall
preclude the exercise or enforcement of any of the Secured Partys rights or remedies. All
rights and remedies of the Secured Party shall be cumulative and may be exercised singularly,
concurrently or successively at the Secured Partys option, and the exercise or enforcement of
any one such right or remedy shall not be a condition to or bar the exercise or enforcement of
any other. No notice or other
communication by the Debtor to the Secured Party, which relates to any of the Obligations, the
Security Interest or the Collateral, shall be effective until it is received by the Secured
Party at the Secured Partys address above. This Agreement shall bind and benefit the Debtor
and the Secured Party and their respective heirs, representatives, successors and assigns and
shall take effect when executed by the Debtor and delivered to the Secured Party, and the
Debtor waives notice of the Secured Partys acceptance hereof. If any provision or
application of this Agreement is held unlawful or unenforceable in any respect, such
illegality or unenforceability shall not affect other provisions or applications which can be
given effect, and this Agreement shall be construed as if the unlawful or unenforceable
provision or application had never been contained herein or prescribed hereby. All
representations and warranties contained in this Agreement shall survive the execution,
delivery and performance of this Agreement and the creation, payment and performance of the
Obligations. This Agreement and the rights and duties of the parties shall be governed by and
construed in accordance with the internal laws of the State of Minnesota (excluding conflict
of law rules).
-6-
9.
AMENDED AND RESTATED SECURITY AGREEMENT.
This Security Agreement amends and restates in its
entirety that certain Security Agreement dated December 4, 2002, made by Debtor in favor of
Excel Bank Minnesota, predecessor in interest to Lender.
THE DEBTOR REPRESENTS AND WARRANTS TO THE SECURED PARTY AND AGREES THAT THE DEBTOR HAS READ ALL OF
THIS AGREEMENT AND UNDERSTANDS ALL OF THE PROVISIONS OF THIS AGREEMENT.
|
|
|
|
|
|
|
|
|
TAURUS NUMERIC TOOL, INC.
,
a Minnesota corporation
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
-7-
EXHIBIT A
LEGAL DESCRIPTION
Lot 1, Block 1, Remmele Addition, Wright County, Minnesota
-8-
EXHIBIT 10.27
AMENDED AND RESTATED
SECURITY AGREEMENT
Date: February 1, 2011
DEBTOR:
WSI Rochester, Inc., a Minnesota corporation
Address:
213 Chelsea Road, Monticello, MN 55362
State Charter No
.: 3S-626
SECURED PARTY:
M&I Marshall & Ilsley Bank
Address:
11455 Viking Drive, Eden Prairie, MN 55344
1.
OBLIGATIONS SECURED
. This Agreement secures the following (called the Obligations):
All debts, liabilities and obligations of every type and description which the Debtor may
now or at any time owe to the Secured Party, including but not limited to all principal,
interest, and other charges, fees, expenses and amounts, and all notes, guaranties,
agreements, and other writings in favor of the Secured Party, whether now existing or
hereafter arising, direct or indirect, due or to become due, absolute or contingent, primary
or secondary, liquidated or unliquidated, independent, joint, several, or joint and several.
2.
SECURITY INTEREST.
To secure the payment and performance of the Obligations, the Debtor grants
the Secured Party a security interest (the Security Interest) in, and assigns to the Secured
Party, the following property (called the Collateral):
All inventory of the Debtor, and all returns of such inventory, and all warehouse receipts,
bills of lading and other documents of title covering such inventory, whether now existing
or hereafter arising, whether now owned or hereafter acquired;
All equipment of the Debtor, including but not limited to all accessions, accessories,
attachments, fittings, increases, parts, repairs, returns, renewals and substitutions of all
or any part thereof, and all warehouse receipts, bills of lading and other documents
covering such equipment, whether now existing or hereafter arising, whether now owned or
hereafter acquired;
All accounts (including but not limited to all health-care-insurance receivables),
instruments, chattel paper, investment property, letter of credit rights, letters of credit,
other rights to payment, documents, deposit accounts, money, patents, patent applications,
trademarks, trademark applications, copyrights, copyright applications, trade names, other
names, software, payment intangibles, and other general intangibles of the Debtor, together
with all good will related to the foregoing property and all rights, liens, security
interests and other interests which the Debtor may at any time have by law or agreement
against any account debtor, issuer or obligor obligated to make any
such payment or against any of the property of such account debtor, issuer, or obligor, and
all supporting obligations relating to the foregoing, whether now existing or hereafter
arising, whether now owned or hereafter acquired;
All other assets of the Debtor, not described above; and
All products and proceeds of the foregoing property, including without limitation all
accounts, instruments, chattel paper, investment property, letter of credit rights, letters
of credit, other rights to payment, documents, deposit accounts, money, insurance proceeds
and general intangibles related to the foregoing property, and all refunds of insurance
premiums due or to become due under all insurance policies covering the foregoing property.
3.
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
. The Debtor
represents and warrants to the Secured Party and agrees as follows:
a. The Debtor is a Minnesota corporation and the address of the Debtors chief executive
office is shown at the beginning of this Agreement. The Debtor has not used any trade name,
assumed name, or other name except the Debtors name stated above. The Debtor shall not
change its state of organization without the Secured Partys prior written consent. The
Debtor shall give the Secured Party prior written notice of any change in such address or
the Debtors name or if the Debtor uses any other name. The Debtor has authority to execute
and perform this Agreement.
b. If any Collateral is or will become a fixture, the record owner of the real estate is WSI
Industries, Inc. and the legal description of the real estate is set forth on the attached
Exhibit A.
c. Except as set forth in any existing or future agreement executed by the Secured Party:
the Debtor is the owner of the Collateral, or will be the owner of the Collateral hereafter
acquired, free of all security interests, liens and encumbrances other than the Security
Interest and any other security interest of the Secured Party; and except for that certain
security interest in favor of Rodney G. Winter, which has been subordinated to the Security
Interest in favor of Secured Party, the Debtor shall not permit any security interest, lien
or encumbrance, other than the Security Interest and any other security interest of the
Secured Party, to attach to any Collateral without the prior written consent of the Secured
Party; the Debtor shall defend the Collateral against the claims and demands of all persons
and entities other than the Secured Party, and shall promptly pay all taxes, assessments and
other government charges upon or against the Debtor, any Collateral and the Security
Interest; and no financing statement covering any Collateral is on file in any public
office. If any Collateral is or will become a fixture the Debtor, at the request of the
Secured Party, shall furnish the Secured Party with a statement or statements executed by
all persons and entities who have or claim an interest in the real estate, in a form
acceptable to the Secured Party, which statement or statements shall provide that such
persons and entities consent to the Security Interest.
-2-
d. The Debtor shall not sell or otherwise dispose of any Collateral or any interest therein
without the prior written consent of the Secured Party, which consent shall not be
unreasonably withheld, except that, until the occurrence of an Event of Default or the
revocation by the Secured Party of the Debtors right to do so, the Debtor (i) may sell or
lease any Collateral constituting inventory in the ordinary course of business at prices
constituting the fair market value thereof, or (ii) sell or dispose of collateral as
otherwise permitted by the Loan Agreement between Secured Party and Debtor of even date
herewith. For purposes of this Agreement, a transfer in partial or total satisfaction of a
debt, obligation or liability shall not constitute a sale or lease in the ordinary course of
business.
e. Each account, instrument, investment property, chattel paper, letter-of-credit right,
letter of credit, other right to payment, document, and general intangible constituting
Collateral is, or will be when acquired, the valid, genuine and legally enforceable
obligation of the account debtor or other issuer or obligor named therein or in the Debtors
records pertaining thereto as being obligated to pay such obligation, subject to no defense,
setoff or counterclaim. The Debtor shall not, without the prior written consent of the
Secured Party, agree to any material modification or amendment of any such obligation or
agree to any subordination or cancellation of any such obligation.
f. Other than inventory in transit and motor vehicles in use, all tangible Collateral shall
be located at the Debtors address stated above and no such Collateral shall be located at
any other address without the prior written consent of the Secured Party.
g. The Debtor shall: (i) keep all tangible Collateral in good condition and repair,
normal depreciation excepted; (ii) from time to time replace any worn, broken or defective
parts thereof; (iii) promptly notify the Secured Party of any loss of or material damage to
any Collateral or of any adverse change in the prospect of payment of any account,
instrument, chattel paper, letter of credit other right to payment or general intangible
constituting Collateral; (iv) not permit any Collateral to be used or kept for any unlawful
purpose or in violation of any federal, state or local law; (v) keep all tangible Collateral
insured in such amounts, against such risks and in such companies as shall be acceptable to
the Secured Party, with lender loss payable clauses in favor of the Secured Party to the
extent of its interest in form acceptable to the Secured Party (including without limitation
a provision for at least 30 days prior written notice to the Secured Party of any
cancellation or modification of such insurance), and deliver policies or certificates of
such insurance to the Secured Party; (vi) at the Debtors chief executive office, keep
accurate and complete records pertaining to the Collateral and the Debtors financial
condition, business and property, and Provide the Secured Party such periodic reports
concerning the Collateral and the Debtors financial condition, business and property as the
Secured Party may from time to time request; (vii) at all reasonable times permit the
Secured Party and its representatives to examine and inspect any Collateral, and to examine,
inspect and copy the Debtors records pertaining to the
Collateral and the Debtors financial condition, business and property; and (viii) at the
Secured Partys request, promptly execute, endorse and deliver such financing statements and
other instruments, documents, control agreements, chattel paper and writings and take such
other actions deemed by the Secured Party to be necessary or desirable to establish,
protect, perfect or enforce the Security Interest and the rights of the Secured Party under
this Agreement and applicable law, and pay all costs of filing financing statements and
other writings in all public offices where filing is deemed by the Secured Party to be
necessary or desirable.
-3-
h. The Debtor authorizes the Secured Party to file all of the Secured Partys financing
statements and amendments to financing statement, and all terminations of the filings of
other secured parties, all with respect to the Collateral, in such form and substance as the
Secured Party, in its sole discretion, may determine.
4.
COLLECTION RIGHTS.
At any time after an Event of Default, the Secured Party may, and at
the request of the Secured Party the Debtor shall, promptly notify any account debtor, issuer or
obligor of an account, instrument, investment property, chattel paper, letter-of-credit right,
letter of credit, other right to payment or general intangible constituting Collateral that the
same has been assigned to the Secured Party and direct such account debtor, issuer or obligor to
make all future payments to the Secured Party. In addition, at the request of the Secured Party,
the Debtor shall deposit in a collateral account designated by the Secured Party all proceeds
constituting Collateral, in their original form received (with any necessary endorsement), within
one business day after receipt of such proceeds by the Debtor. Until the Debtor makes each such
deposit, the Debtor will hold all such proceeds separately in trust for the Secured Party for
deposit in such collateral account, and will not commingle any such proceeds with any other
property. The Debtor shall have no right to withdraw any funds from such collateral account, and
the Debtor shall have no control over such collateral account. Such collateral account and all
funds at any time therein shall constitute Collateral under this Agreement. Before or upon final
collection of any funds in such collateral account, the Secured Party, at its discretion, may
release any such funds to the Debtor or any account of the Debtor or apply any such funds to the
Obligations whether or not then due. Any release of funds to the Debtor or any account of the
Debtor shall not prevent the Secured Party from subsequently applying any funds to the
Obligations. All items credited to such collateral account and subsequently returned and all
other costs, fees and charges of the Secured Party in connection with such collateral account may
be charged by the Secured Party to any account of the Debtor, and the Debtor shall pay the Secured
Party all such amounts on demand.
5.
LIMITED POWER OF ATTORNEY
. If the Debtor at any time fails to perform or observe any
agreement herein, the Secured Party, in the name and on behalf of the Debtor or, at its option, in
its own name, may perform or observe such agreement and take any action which the Secured Party
may deem necessary or desirable to cure or correct such failure. The Debtor irrevocably
authorizes Secured Party and grants the Secured Party a limited power of attorney in the name and
on behalf of the Debtor or, at its option, in its own name, to collect, receive, receipt for,
create, prepare, complete, execute, endorse, deliver and file any and all financing statements,
control agreements, insurance applications, remittances, instruments,
documents, chattel paper and other writings, to grant any extension to, compromise, settle, waive,
notify, amend, adjust, change and release any obligation of any account debtor, issuer, obligor,
insurer or other person or entity pertaining to any Collateral, to demand terminations of other
security interests in any of the Collateral and to take any other action deemed by the Secured
Party to be necessary or desirable to establish, perfect, protect or enforce the Security
Interest. All of the Secured Partys advances, fees, charges, costs and expenses, including but
not limited to audit fees and expenses and reasonable attorneys fees and legal expenses, in
connection with the Obligations and in the protection and exercise of any rights or remedies
hereunder, together with interest thereon at the highest rate then applicable to any of the
Obligations, shall be secured hereunder and shall be paid by the Debtor to the Secured Party on
demand.
-4-
6.
EVENTS OF DEFAULT
. The occurrence of any of the following events shall constitute an
Event of Default: (a) any breach or default in the payment or performance of any of the
Obligations; or (b) any breach or default under the terms of this Agreement or any other note,
obligation, mortgage, deed of trust, assignment, guaranty, other agreement, or other writing
heretofore, herewith or hereafter existing to which the Debtor or any maker, endorser, guarantor
or surety of any of the Obligations or any other person or entity providing security for any of
the Obligations or for any guaranty of any of the Obligations is a party; or (c) the insolvency,
dissolution, liquidation, merger or consolidation of the Debtor or any such maker, endorser,
guarantor, surety or other person or entity; or (d) any appointment of a receiver, trustee or
similar officer of any property of the Debtor or any such maker, endorser, guarantor, surety or
other person or entity; or (e) any assignment for the benefit of creditors of the Debtor or any
such maker, endorser, guarantor, surety or other person or entity; or (f) any commencement of any
proceeding under any bankruptcy, insolvency, receivership, dissolution, liquidation or similar law
by or against the Debtor or any such maker, endorser, guarantor, surety or other person or entity;
or (g) the sale, lease or other disposition (whether in one or more transactions) to one or more
persons or entities of all or a substantial part of the assets of the Debtor or any such maker,
endorser, guarantor, surety or other person or entity; or (h) the Debtor or any such maker,
endorser, guarantor, surety or other person or entity takes any action to go out of business, or
to revoke or terminate any agreement, liability or security in favor of the Secured Party; or (i)
the entry of any judgment or other order for the payment of money in the amount of $50,000.00 or
more against the Debtor or any such maker, endorser, guarantor, surety or any other person or
entity, and the continuance of such judgment, or order unsatisfied and in effect for any period of
60 consecutive days without a stay of execution; or j) the issuance or levy of any writ, warrant,
attachment, garnishment, execution or other process against any property of the Debtor or any such
maker, endorser, guarantor, surety or any other person or entity; or (k) the attachment of any tax
lien to any property of the Debtor or any such maker, endorser, guarantor, surety or other person
or entity; or (1) any statement, representation or warranty made by the Debtor or any such maker,
endorser, guarantor, surety or other person or entity (or any representative of the Debtor or any
such maker, endorser, guarantor, surety or other person or entity) to the Secured Party at any
time shall be incorrect or misleading in any material respect when made; or (m) there is a
material adverse change in the condition (financial or otherwise), business or property of the
Debtor or any such maker, endorser, guarantor, surety or other person or
entity; or (n) the Secured Party shall in good faith believe that the prospect for due and
punctual payment or performance of any of the Obligations, this Agreement or any other note,
obligation, mortgage, deed of trust, assignment, guaranty, or other agreement heretofore, herewith
or hereafter given to or acquired by the Secured Party in connection with any of the Obligations
is impaired.
-5-
7.
REMEDIES.
Upon the commencement of any proceeding under any bankruptcy law by or against
the Debtor or any such maker, endorser, guarantor, surety or other person or entity, all
Obligations automatically shall become immediately due and payable in full, without declaration,
presentment, or other notice or demand, all of which are hereby waived by the Debtor. In
addition, upon the occurrence of any Event of Default and at any time thereafter, the Secured
Party may exercise any one or more of the following rights and remedies: (a) declare all
Obligations to be immediately due and payable in full, and the same shall thereupon be immediately
due and payable in full, without presentment or other notice or demand, all of which are hereby
waived by the Debtor; (b) require the Debtor to assemble all or any part of the Collateral and
make it available to the Secured Party at a place to be designated by the Secured Party which is
reasonably convenient to both parties; (c) exercise and enforce any and all rights and remedies
available upon default under this Agreement, the Minnesota Uniform Commercial Code, as amended
from time to time (the UCC), and any other applicable agreements and laws. If notice to the
Debtor of any intended disposition of Collateral or other action is required, such notice shall be
deemed reasonably and properly given if mailed by regular or certified mail, postage prepaid, to
the Debtor at the address stated at the beginning of this Agreement or at the most recent address
shown in the Secured Partys records, at least 10 days prior to the action described in such
notice. The Debtor consents to the personal jurisdiction of the state and federal courts located
in the State of Minnesota in connection with any controversy related to this Agreement, the
Collateral, the Security Interest or any of the Obligations, waives any argument that venue in
such forums is not convenient, and agrees that any litigation initiated by the Debtor against the
Secured Party in connection with this Agreement, the Collateral, the Security Interest or any of
the Obligations shall be venued in either the District Court of Hennepin County, Minnesota or
the United States District Court, District of Minnesota, Fourth Division.
8.
MISCELLANEOUS
. All terms in this Agreement that are defined in the UCC shall have the
meanings set forth in the UCC, and such meanings shall automatically change at the time that
any amendment to the UCC, which changes such meanings, shall become effective. A carbon,
photographic or other reproduction of this Agreement is sufficient as a financing statement.
No provision of this Agreement can be waived, modified, amended, abridged, supplemented,
terminated or discharged and the Security Interest cannot be released or terminated, except by
a writing duly executed by the Secured Party. A waiver shall be effective only in the
specific instance and for the specific purpose given. No delay or failure to act shall
preclude the exercise or enforcement of any of the Secured Partys rights or remedies. All
rights and remedies of the Secured Party shall be cumulative and may be exercised singularly,
concurrently or successively at the Secured Partys option, and the exercise or enforcement of
any one such right or remedy shall not be a condition to or bar the exercise or enforcement of
any other. No notice or other
communication by the Debtor to the Secured Party, which relates to any of the Obligations, the
Security Interest or the Collateral, shall be effective until it is received by the Secured
Party at the Secured Partys address above. This Agreement shall bind and benefit the Debtor
and the Secured Party and their respective heirs, representatives, successors and assigns and
shall take effect when executed by the Debtor and delivered to the Secured Party, and the
Debtor waives notice of the Secured Partys acceptance hereof. If any provision or
application of this Agreement is held unlawful or unenforceable in any respect, such
illegality or unenforceability shall not affect other provisions or applications which can be
given effect, and this Agreement shall be construed as if the unlawful or unenforceable
provision or application had never been contained herein or prescribed hereby. All
representations and warranties contained in this Agreement shall survive the execution,
delivery and performance of this Agreement and the creation, payment and performance of the
Obligations. This Agreement and the rights and duties of the parties shall be governed by and
construed in accordance with the internal laws of the State of Minnesota (excluding conflict
of law rules).
-6-
9.
AMENDED AND RESTATED SECURITY AGREEMENT.
This Security Agreement amends and restates in its
entirety that certain Security Agreement dated December 4, 2002, made by Debtor in favor of
Excel Bank Minnesota, predecessor in interest to Lender.
THE DEBTOR REPRESENTS AND WARRANTS TO THE SECURED PARTY AND AGREES THAT THE DEBTOR HAS READ ALL OF
THIS AGREEMENT AND UNDERSTANDS ALL OF THE PROVISIONS OF THIS AGREEMENT.
|
|
|
|
|
|
|
|
|
WSI ROCHESTER, INC.
,
a Minnesota corporation
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Its:
|
|
|
|
|
|
|
|
|
|
|
|
-7-
EXHIBIT A
LEGAL DESCRIPTION
Lot 1, Block 1, Remmele Addition, Wright County, Minnesota
-8-
EXHIBIT 10.28
Loan Number:
GUARANTY
THIS GUARANTY (this Guaranty), is made as of the 1st day of February, 2011, by WSI
Rochester, Inc., a Minnesota corporation, having an address of 213 Chelsea Road, Monticello, MN
55362 (hereinafter called the Guarantor) for the benefit of M&I Marshall & Ilsley Bank, a
Wisconsin banking corporation (hereinafter called the Lender).
W I T N E S S E T H:
WHEREAS, WSI Industries, Inc., a Minnesota corporation (the Borrower), desires to obtain a
loan (the Loan) from Lender in the aggregate principal amount of One Million and no/100 Dollars
($1,000,000.00), pursuant to the terms and conditions of that certain Amended and Restated Loan
Agreement (the Loan Agreement) entered into by and between Borrower and Lender as of the date
hereof and which Loan shall be evidenced by a $1,000,000.00 Amended and Restated Revolving Credit
Promissory Note (the Note) dated as of the date hereof;
WHEREAS, Guarantor is a related entity to Borrower, is interested in the affairs of Borrower,
and has determined it is in the interest of the undersigned that Lender make the Loan to Borrower;
WHEREAS, Lender has required as a condition of making such Loan that Guarantor executes this
Guaranty as further security for payment of the Indebtedness (as hereinafter defined) and all of
Borrowers obligations under the Loan Agreement and Note, in manner and form as herein provided,
and Guarantor, by reason of its relationship to Borrower and in order to induce Lender to make the
Loan, has agreed to execute this Guaranty;
WHEREAS, all documents executed in conjunction with the Note and Loan Agreement, as from time
to time renewed, modified or extended, are hereinafter referred to as the Loan Documents; and
WHEREAS, Guarantor will directly benefit from the extension of credit from Lender to Borrower.
NOW, THEREFORE, in consideration of the extension of credit by Lender to Borrower, the mutual
promises contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Guarantor agrees as follows:
1.
Guaranty of Payment
. For good and valuable consideration, Guarantor absolutely and
unconditionally guarantees, jointly and severally with any and all other guarantors now or
hereafter guarantying the Note, full and punctual payment and satisfaction of the Indebtedness of
Borrower to Lender, and the performance and discharge of all Borrowers obligations under the Note
and the Loan Documents. This is a guaranty of payment and performance and not of collection.
Lender may enforce this Guaranty against Guarantor even when Lender has not commenced or exhausted
Lenders remedies against Borrower or any other party obligated to pay the Indebtedness or against
any collateral securing the Indebtedness, this Guaranty or any other guaranty of the Indebtedness.
Guarantor will make any payments to Lender or its order, on demand, in legal tender of the United
States of America, in same-day funds, without set-off or deduction or counterclaim, and will
otherwise perform Borrowers obligations
under the Note and the Loan Documents. Under this Guaranty, Guarantors liability is
unlimited and Guarantors obligations are continuing.
If Lender presently holds one or more guaranties, or hereafter receives additional guaranties
from Guarantor, Lenders rights under all guaranties shall be cumulative. This Guaranty shall not
(unless specifically provided below to the contrary) affect or invalidate any such other
guaranties. Guarantors liability will be Guarantors aggregate liability under the terms of this
Guaranty and any such other unterminated guaranties.
2.
Definition of Indebtedness
. The word Indebtedness as used in this Guaranty shall
mean all of the principal amount outstanding from time to time and at any one or more times,
accrued unpaid interest thereon, and all collection costs and legal expenses related thereto
permitted by law, and attorneys fees arising from any and all debts, liabilities and obligations
of every nature or form, now existing or hereafter arising or acquired, that Borrower individually
or collectively or interchangeably with others, owes or will owe Lender. Indebtedness includes,
without limitation, loans, advances (including, but not limited to, protective advances made by
Lender), debts, overdraft indebtedness, credit card indebtedness, lease obligations, liabilities
and obligations under any interest rate protection agreements or foreign currency exchange
agreements or commodity price protection agreements, other obligations and liabilities of Borrower,
or any one or more of them, and any present or future judgments against Borrower, or any one or
more of them, future advances, loans or transactions that renew, extend, modify, refinance,
consolidate or substitute these debts, liabilities and obligations whether: voluntarily or
involuntarily incurred; due or to become due by their terms or acceleration; absolute or
contingent; liquidated or unliquidated; determined or undetermined; direct or indirect; primary or
secondary in nature or arising from a guaranty or surety; secured or unsecured; joint or several or
joint and several; evidenced by a negotiable or non-negotiable instrument or writing; originated by
Lender or another or others; barred or unenforceable against Borrower for any reason whatsoever;
for any transactions that may be voidable for any reason (such as infancy, insanity, ultra vires or
otherwise); and originated then reduced or extinguished and then afterwards increased or
reinstated. The definition of Indebtedness shall also include the amount of any payments made to
Lender on behalf of Borrower (including payments resulting from liquidation of collateral) which
are recovered from Lender by a trustee, receiver, creditor or other party pursuant to applicable
Federal or state law (the Surrendered Payments). In the event that Lender makes any Surrendered
Payments (including pursuant to a negotiated settlement), the Surrendered Payments shall
immediately be reinstated as Indebtedness, regardless of whether Lender has surrendered or
cancelled this Guaranty prior to returning the Surrendered Payments.
3.
Continuing Guaranty
. THIS IS A CONTINUING GUARANTY UNDER WHICH GUARANTOR AGREES
TO GUARANTEE THE FULL AND PUNCTUAL PAYMENT, PERFORMANCE AND SATISFACTION OF THE INDEBTEDNESS OF
BORROWER TO LENDER, NOW EXISTING OR HEREAFTER ARISING OR ACQUIRED, ON AN OPEN AND CONTINUING BASIS.
ACCORDINGLY, ANY PAYMENTS MADE ON THE INDEBTEDNESS WILL NOT DISCHARGE OR DIMINISH GUARANTORS
OBLIGATIONS AND LIABILITY UNDER THIS GUARANTY FOR ANY REMAINING AND SUCCEEDING INDEBTEDNESS EVEN
WHEN ALL OR PART OF THE OUTSTANDING INDEBTEDNESS MAY BE A ZERO BALANCE FROM TIME TO TIME.
Guarantor agrees that the obligations of Guarantor hereunder shall be primary obligations,
shall not be subject to any counterclaim, set-off, abatement, deferment or defense based upon any
claim that Guarantor may have against Lender, Borrower, any other guarantor of the Indebtedness or
any other person or entity, and shall remain in full force and effect without regard to, and shall
not be released, discharged or affected in any way by, any circumstance or condition (whether or
not Guarantor shall have any knowledge thereof), including without limitation:
(a) any lack of validity or enforceability of the Indebtedness or any of the Loan
Documents;
(b) any termination, amendment, modification or other change in the Indebtedness or any
of the Loan Documents, including, without limitation, any modification of the interest
rate(s) described therein;
(c) any furnishing, exchange, substitution or release of any collateral securing
repayment of the Loan, or any failure to perfect any lien in such collateral;
(d) any failure, omission or delay on the part of Borrower, Guarantor, any other
guarantor of the Indebtedness or Lender to conform or comply with any term of any of the
Loan Documents or any failure of Lender to give notice of any Event of Default (as defined
in the Loan Documents);
(e) any waiver, compromise, release, settlement or extension of time of payment or
performance or observance of any of the obligations or agreements contained in any of the
Loan Documents;
(f) any action or inaction by Lender under or in respect of any of the Loan Documents,
any failure, lack of diligence, omission or delay on the part of Lender to enforce, assert
or exercise any right, power or remedy conferred on it in any of the Loan Documents, or any
other action or inaction on the part of Lender;
(g) any voluntary or involuntary bankruptcy, insolvency, reorganization, arrangement,
readjustment, assignment for the benefit of creditors, composition, receivership,
liquidation, marshalling of assets and liabilities or similar events or proceedings with
respect to Borrower, Guarantor or any other guarantor of the Indebtedness, as applicable, or
any of their respective property or creditors, or any action taken by any trustee or
receiver or by any court in any such proceeding;
(h) any merger or consolidation of Borrower into or with any entity, or any sale, lease
or transfer of any of the assets of Borrower, Guarantor or any other guarantor of the
Indebtedness to any other person or entity;
(i) any change in the ownership of Borrower or any change in the relationship between
Borrower, Guarantor or any other guarantor of the Indebtedness, or any termination of any
such relationship;
(j) any release or discharge by operation of law of Borrower or any other guarantor of
the Indebtedness from any obligation or agreement contained in any of the Loan Documents;
(k) any other occurrence, circumstance, happening or event, whether similar or
dissimilar to the foregoing and whether foreseen or unforeseen, which otherwise might
constitute a legal or equitable defense or discharge of the liabilities of a guarantor or
surety or which otherwise might limit recourse against Borrower or Guarantor; or
(l) any invalidity, irregularity or unenforceability in whole or in part (including
with respect to any netting provision) of any interest rate swap, basis swap, forward rate,
interest rate option, collar or corridor agreement or transaction or any similar transaction
between Borrower
and Lender or any confirmation, instrument or agreement required thereunder or related
thereto, or any transaction entered into thereunder, or any limitation on the liability of
Borrower thereunder or any limitation on the method or terms of payment thereunder which may
now or hereafter be caused or imposed in any manner whatsoever.
4.
Duration of Guaranty
. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or to Borrower, and
will continue in full force until all the Indebtedness incurred shall have been fully and finally
paid and satisfied and all of Guarantors other obligations under this Guaranty shall have been
performed in full. Release of any other guarantor or termination of any other guaranty of the
Indebtedness shall not affect the liability of Guarantor under this Guaranty.
It is anticipated
that fluctuations may occur in the aggregate amount of the Indebtedness covered by this Guaranty,
and Guarantor specifically acknowledges and agrees that reductions in the amount of the
Indebtedness, even to zero dollars ($0.00), shall not constitute a termination of this Guaranty.
This Guaranty is binding upon Guarantor and Guarantors heirs, successors and assigns so long as
any of the Indebtedness remains unpaid and even though the Indebtedness may from time to time be
zero dollars ($0.00).
5.
Binding Nature; Successors and Assigns
. Guarantor agrees that this Guaranty shall
be a continuing guaranty and shall inure to the benefit of and may be enforced by Lender and any
subsequent holder of the Note and/or successor in interest under the Loan Agreement and Loan
Documents (Guarantor hereby consenting to any transfer of the Note, Loan Agreement, and/or Loan
Documents without notice). This Guaranty shall be binding upon and inure to the benefit of the
parties, their successors and assigns. This Guaranty shall bind Guarantors estate as to the
Indebtedness created both before and after Guarantors death or incapacity, regardless of Lenders
actual notice of Guarantors death.
6.
Representations and Warranties
. Guarantor represents and warrants to Lender that:
(a) no representations or agreements of any kind have been made to Guarantor which would limit or
qualify in any way the terms of this Guaranty; (b) the making of the Loan by Lender to Borrower
confers a real and substantial benefit to Guarantor and is fully supportive of and provides
valuable consideration for the execution of this Guaranty; (c) Guarantor is interested in the
affairs of Borrower and is thoroughly familiar with the business affairs, books, records, financial
condition and operations of Borrower; (d) Guarantor has full power, right and authority to enter
into this Guaranty, and this Guaranty has been duly executed and delivered by Guarantor and
constitutes the legally enforceable obligation of Guarantor in accordance with its terms; (e) the
provisions of this Guaranty do not conflict with or result in a default under any agreement or
other instrument binding upon Guarantor and do not result in a violation of any law, regulation,
court decree or order applicable to Guarantor; (f) Guarantor has not and will not, without the
prior written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise
dispose of all or substantially all of Guarantors assets, or any interest therein; (g) upon
Lenders request, Guarantor will provide to Lender financial and credit information in form
acceptable to Lender, and all such financial information which currently has been, and all future
financial information which will be provided to Lender is and will be true and correct in all
material respects and fairly present Guarantors financial condition as of the dates the financial
information is provided; (h) no material adverse change has occurred in Guarantors financial
condition since the date of the most recent financial statements provided to Lender and no event
has occurred which may materially adversely affect Guarantors financial condition; (i) Guarantor
has not filed any petition nor has any petition been filed against Guarantor in bankruptcy or
insolvency or reorganization or for the appointment of a receiver or trustee or for the arrangement
of debts, nor has Guarantor been the subject of such action, nor has such action been threatened by
or against Guarantor, and Guarantor is not insolvent nor will Guarantor be rendered insolvent by
the consummation of the Loan and execution of this Guaranty; (j) no litigation, claim,
investigation, administrative proceeding or similar action (including those for unpaid taxes)
against Guarantor is pending or threatened; (k) Lender has made no representation to
Guarantor as
to the creditworthiness of Borrower; (l) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrowers financial condition; and (m) that
if any interest rate swap, basis swap, forward rate, interest rate option, collar or corridor
agreement or transaction or any similar transaction between Borrower and Lender shall at any time
be in effect, (x) Guarantor has received and examined copies of each document relating to such
transaction, the observance and performance of which by Borrower is hereby guaranteed; (y)
Guarantor will benefit from Lender entering into each such agreement and any transactions
thereunder with Borrower, and Guarantor has determined that the execution and delivery by Guarantor
of this Guaranty are necessary and convenient to the conduct, promotion and attainment of the
business of Guarantor; and (z) Lender has no duty to determine whether any such agreement or
transaction will be or has been entered into by Borrower for purposes of hedging interest rate,
currency exchange rate, or other risks arising in its businesses or affairs and not for purposes of
speculation, or is otherwise inappropriate for Borrower. Guarantor agrees to keep adequately
informed from such means of any facts, events, or circumstances which might in any way affect
Guarantors risks under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any information or documents
acquired by Lender in the course of its relationship with Borrower or to monitor the performance
of Borrower under the Loan Documents. It is the intention of the parties that Lender may rely
completely on this Guaranty for its repayment of the Indebtedness whether or not Borrower is
creditworthy and whether or not it would be prudent to make loans or advances to Borrower or to
permit the same to remain outstanding.
7.
Guarantors Authorizations
. Guarantor authorizes Lender, without notice or demand
and without lessening Guarantors liability under this Guaranty, from time to time: (a) to make
one or more additional secured or unsecured loans to Borrower, to lease equipment or other goods to
Borrower, or otherwise to extend additional credit to Borrower; (b) to alter, compromise, renew,
extend, accelerate, or otherwise change one or more times the time for payment or other terms of
the Indebtedness or any part of the Indebtedness, including increases and decreases of the rate of
interest on the Indebtedness; extensions may be repeated and may be for longer than the original
loan term; (c) to take and hold security for the payment of this Guaranty or the Indebtedness,
and exchange, enforce, waive, subordinate, fail or decide not to perfect, and release any such
security, with or without the substitution of new collateral; (d) to release, substitute, agree
not to sue, or deal with any one or more of Borrowers sureties, endorsers, or other guarantors on
any terms or in any manner Lender may choose; (e) to determine how, when and what application of
payments and credits shall be made on the Indebtedness; (f) to apply such security and direct the
order or manner of sale thereof, including without limitation, any nonjudicial sale permitted by
the terms of the controlling security agreement or mortgage, as Lender in its discretion may
determine; (g) to sell, transfer, assign or grant participations in all or any part of the
Indebtedness; and (h) to assign or transfer this Guaranty in whole or in part.
8.
Waivers by Guarantor
. Except as prohibited by applicable law, Guarantor waives any
right to require Lender: (a) to continue lending money or to extend other credit to Borrower;
(b) to make any presentment, protest, demand, or notice of any kind, including notice of any
nonpayment of the Indebtedness or of any nonpayment related to any collateral, or notice of any
action or nonaction on the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or additional loans or
obligations; (c) to resort for payment or to proceed directly or at once against any person,
including Borrower or any other guarantor; (d) to proceed directly against or exhaust any
collateral held by Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or private sale of personal property security
held by Lender from Borrower or to comply with any other applicable provisions of the Uniform
Commercial Code; (f) to pursue any other remedy within Lenders power; or (g) to commit any act
or omission of any kind, or at any time, with respect to any matter whatsoever.
Guarantor also waives any relief available under valuation and appraisement laws and any and
all rights or defenses based on suretyship or impairment of collateral including, but not limited
to, any rights or defenses arising by reason of: (i) any one action or anti-deficiency law or
any other law which may prevent Lender from bringing any action, including a claim for deficiency,
against Guarantor, before or after Lenders commencement or completion of any foreclosure action,
either judicially or if permitted by applicable law by exercise of a power of sale; (ii) any
election of remedies by Lender which destroys or otherwise adversely affects Guarantors
subrogation rights or Guarantors rights to proceed against Borrower for reimbursement, including
without limitation, any loss of rights Guarantor may suffer by reason of any law limiting,
qualifying, or discharging the Indebtedness; (iii) any disability or other defense of Borrower,
of any other guarantor, or of any other person, or by reason of the cessation of Borrowers
liability from any cause whatsoever, other than payment in full in legal tender, of the
Indebtedness; (iv) any right to claim discharge of the Indebtedness on the basis of unjustified
impairment of any collateral for the Indebtedness; (v) any statute of limitations, if at any time
any action or suit brought by Lender against Guarantor is commenced, there is outstanding
Indebtedness which is not barred by any applicable statute of limitations; or (vi) any defenses
given to guarantors at law or in equity other than actual payment and performance of the
Indebtedness. Without limiting the provisions of the last two (2) sentences of Section 2 above, if
payment is made by Borrower, whether voluntarily or otherwise, or by any third party, on the
Indebtedness and thereafter Lender is forced to remit the amount of that payment to Borrowers
trustee in bankruptcy or to any similar person under any federal or state bankruptcy law or law for
the relief of debtors, the Indebtedness shall be considered unpaid for the purpose of the
enforcement of this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any deductions to the amount
guaranteed under this Guaranty for any claim of setoff, counterclaim, counter demand, recoupment or
similar right, whether such claim, demand or right may be asserted by the Borrower, the Guarantor,
or both.
Guarantor warrants and agrees that each of the waivers set forth above is made with
Guarantors full knowledge of its significance and consequences and that, under the circumstances,
the waivers are reasonable and not contrary to public policy or law. If any such waiver is
determined to be contrary to any applicable law or public policy, such waiver shall be effective
only to the extent permitted by law or public policy.
9.
Acknowledgments of Guarantor
. Guarantor acknowledges and agrees that Lender has
not made any representations or warranties with respect to, does not assume any responsibility to
Guarantor for, and has no duty to provide information to Guarantor regarding, the collectability or
enforceability of the Indebtedness or the financial condition of Borrower or any Guarantor.
Guarantor has independently determined the collectability and enforceability of the Indebtedness
and, until the Indebtedness is paid in full, will independently and without reliance on Lender
continue to make such determinations. Guarantor agrees that Guarantor has read and fully
understands the terms of this Guaranty, Guarantor has had the opportunity to be advised by
Guarantors attorney with respect to this Guaranty, and the Guaranty fully reflects Guarantors
intentions and parol evidence is not required to interpret the terms of this Guaranty. Guarantor
hereby indemnifies and holds Lender harmless for, from and against all losses, claims, damages, and
costs (including Lenders attorneys fees) suffered or incurred by Lender as a result of any breach
by Guarantor of the warranties, representations and agreements of this Section.
10.
Subordination of Debts to Guarantor
. Guarantor agrees that the Indebtedness,
whether now existing or hereafter created, shall be superior to any claim that Guarantor may now
have or hereafter acquire against Borrower, whether or not Borrower becomes insolvent. Guarantor
hereby expressly subordinates any claim Guarantor may have against Borrower, upon any account
whatsoever, to any
claim that Lender may now or hereafter have against Borrower. In the event of insolvency and
consequent liquidation of the assets of Borrower, through bankruptcy, by an assignment for the
benefit of creditors, by voluntary liquidation, or otherwise, the assets of Borrower applicable to
the payment of the claims of both Lender and Guarantor shall be paid to Lender and shall be first
applied by Lender to the Indebtedness. Guarantor does hereby assign to Lender all claims which it
may have or acquire against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose of assuring to
Lender full payment in legal tender of the Indebtedness. If Lender so requests, any notes or
credit agreements now or hereafter evidencing any debts or obligations of Borrower to Guarantor
shall be marked with a legend that the same are subject to this Guaranty and shall be delivered to
Lender. Guarantor agrees, and Lender is hereby authorized, in the name of Guarantor, from time to
time to file financing statements and continuation statements and to execute documents and to take
such other actions as Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
Notwithstanding any payment or performance by Guarantor pursuant to this Guaranty, Guarantor
shall not be entitled to be subrogated to any rights of Lender against Borrower or any other
guarantor of the Indebtedness prior to the time at which the Indebtedness is repaid in full and all
periods under applicable bankruptcy law for the contest of any payment by Guarantor or Borrower as
a preferential or fraudulent payment have expired, and Guarantor knowingly and with the advise of
counsel waives and releases all rights and claims to indemnification, reimbursement and
contribution Guarantor now has or at any time hereafter may have against Borrower or Borrowers
estate prior to the time at which the Indebtedness is repaid in full and all periods under
applicable bankruptcy law for the contest of any payment by Guarantor or Borrower as a preferential
or fraudulent payment have expired, including, without limitation, any rights which may allow
Borrower, Borrowers successors, a creditor of Borrower, or a trustee in bankruptcy of the Borrower
to claim in bankruptcy or any other similar proceedings that any payment made by Borrower or
Borrowers successors and assigns to Lender was on behalf of or for the benefit of Guarantor and
that such payment is recoverable by Borrower, a creditor or trustee in bankruptcy of Borrower as a
preferential payment, fraudulent conveyance, payment of an insider or any other classification of
payment which may otherwise be recoverable from Lender.
11.
Setoff
. To the extent permitted by applicable law, Lender reserves a right of
setoff in all Guarantors accounts with Lender (whether checking, savings, or some other account).
This includes all accounts Guarantor holds jointly with someone else and all accounts Guarantor may
open in the future. However, this does not include any IRA or Keogh accounts, or any trust
accounts for which setoff would be prohibited by law. Guarantor authorizes Lender, to the extent
permitted by applicable law, to hold these funds if there is a default, and Lender may apply the
funds in these accounts to pay what Guarantor owes under the terms of this Guaranty.
12.
Applicable Law
. This Guaranty will be governed by federal law applicable to
Lender and, to the extent not preempted by federal law, the laws of the State of Minnesota without
regard to its conflicts of law provisions.
13.
CHOICE OF VENUE
. GUARANTOR HEREBY AGREES THAT ALL ACTIONS OR PROCEEDINGS
INITIATED BY GUARANTOR AND ARISING DIRECTLY OR INDIRECTLY OUT OF THIS GUARANTY OR THE OTHER LOAN
DOCUMENTS SHALL BE LITIGATED IN THE DISTRICT COURT OF HENNEPIN COUNTY, MINNESOTA, OR AT LENDERS
DISCRETION IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA. GUARANTOR HEREBY
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING
COMMENCED BY LENDER IN SUCH COURT. GUARANTOR WAIVES ANY CLAIM THAT HENNEPIN COUNTY, MINNESOTA, OR
THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA IS AN INCONVENIENT FORUM OR AN
IMPROPER FORUM BASED ON LACK OF VENUE. THE EXCLUSIVE CHOICE OF FORUM FOR GUARANTOR SET FORTH
IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT, BY LENDER, OF ANY JUDGMENT
OBTAINED IN ANY OTHER FORUM OR THE TAKING, BY LENDER, OF ANY ACTION TO ENFORCE THE SAME IN ANY
OTHER APPROPRIATE JURISDICTION, AND GUARANTOR HEREBY WAIVES THE RIGHT, IF ANY, TO COLLATERALLY
ATTACK ANY SUCH JUDGMENT OR ACTION.
14.
WAIVER OF RIGHT TO JURY TRIAL
. LENDER AND GUARANTOR HEREBY WAIVE THE RIGHT TO ANY
JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER LENDER OR GUARANTOR AGAINST
THE OTHER.
15.
Fees Relating to Enforcement
. Guarantor agrees to pay upon demand all of Lenders
costs and expenses, including Lenders attorneys fees and Lenders legal expenses, incurred in
connection with the enforcement of this Guaranty. Lender may hire or pay someone else to help
enforce this Guaranty, and Guarantor shall pay the costs and expenses of such enforcement. Costs
and expenses include Lenders attorneys fees and legal expenses whether or not there is a lawsuit,
including attorneys fees and legal expenses for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment
collection services. Guarantor also shall pay all court costs and such additional fees as may be
directed by the court.
16.
Annual Financial Information
. Guarantor agrees to furnish Lender Guarantors
financial statements included as a part of the consolidated financial statement of the Borrower.
17.
Remedy for Failure to Deliver Financial Statements
. Upon any failure of Guarantor
to deliver Guarantors periodic financial statements as required pursuant to Section 16 above,
Lender shall have the option of imposing an administrative fee of Five Hundred Dollars ($500.00)
for each such failure and for each entity for which such financial statements were required to be
delivered. Lender shall notify Guarantor of Guarantors failure to deliver such financial
statements and, if Guarantor does not cure such failure within thirty (30) days after receipt of
such notice from Lender, Lender shall have the right to impose such fee by delivering written
notice thereof to Guarantor. Within ten (10) days after receipt of such written notice, Guarantor
shall pay the fee to Lender. Lenders receipt of such fee in any instance shall not relieve
Guarantor from its obligation to deliver the required financial statements, whether for the
then-current period or any future period. A waiver by Lender of its right to impose such fee shall
not constitute a waiver of Lenders right to impose such fee upon any future failure of Guarantor
to deliver the required financial statements.
18.
No Waiver by Lender
. Lender shall not be deemed to have waived any rights under
this Guaranty unless such waiver is given in writing and signed by Lender. No delay or omission on
the part of Lender in exercising any right shall operate as a waiver of such right or any other
right. A waiver by Lender of a provision of this Guaranty shall not prejudice or constitute a
waiver of Lenders right otherwise to demand strict compliance with that provision or any other
provision of this Guaranty. No prior waiver by Lender, nor any course of dealing between Lender
and Guarantor, shall constitute a waiver of any of Lenders rights or of any of Guarantors
obligations as to any future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not constitute continuing
consent to subsequent instances where such consent is required and in all cases such consent may be
granted or withheld in the sole discretion of Lender.
IN WITNESS WHEREOF, the undersigned Guarantor has executed and delivered this Guaranty to take
effect as of the date first above written.
|
|
|
|
|
|
GUARANTOR:
WSI Rochester, Inc.
|
|
|
By:
|
|
|
|
|
Name:
|
|
|
|
|
Title:
|
|
|
|
|
STATE OF MINNESOTA
|
)
|
|
) SS
|
COUNTY OF
|
)
|
On this
_____
day of March, 2011, before me appeared
, to me personally known,
who, being by me duly sworn, did say that he/she is the
of WSI Rochester, Inc., a
Minnesota corporation, and that said instrument was signed on behalf of said company by its
authority, and said person acknowledged said instrument to be the free act and deed of said
company.
In Testimony Whereof, I have hereunto set my hand and affixed my official seal the day and
year first above written.
|
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
|
|
|
|
|
|
Notary Public, State of
|
|
|
|
|
|
|
|
|
|
|
|
My Commission Expires:
|
|
|
|
|
|
|
|
|
|
EXHIBIT 10.29
Loan Number:
GUARANTY
THIS GUARANTY (this Guaranty), is made as of the 1st day of February, 2011, by Taurus
Numeric Tool, Inc., a Minnesota corporation, having an address of 213 Chelsea Road, Monticello, MN
55362 (hereinafter called the Guarantor) for the benefit of M&I Marshall & Ilsley Bank, a
Wisconsin banking corporation (hereinafter called the Lender).
W I T N E S S E T H:
WHEREAS, WSI Industries, Inc., a Minnesota corporation (the Borrower), desires to obtain a
loan (the Loan) from Lender in the aggregate principal amount of One Million and no/100 Dollars
($1,000,000.00), pursuant to the terms and conditions of that certain Amended and Restated Loan
Agreement (the Loan Agreement) entered into by and between Borrower and Lender as of the date
hereof and which Loan shall be evidenced by a $1,000,000.00 Amended and Restated Revolving Credit
Promissory Note (the Note) dated as of the date hereof;
WHEREAS, Guarantor is a related entity to Borrower, is interested in the affairs of Borrower,
and has determined it is in the interest of the undersigned that Lender make the Loan to Borrower;
WHEREAS, Lender has required as a condition of making such Loan that Guarantor executes this
Guaranty as further security for payment of the Indebtedness (as hereinafter defined) and all of
Borrowers obligations under the Loan Agreement and Note, in manner and form as herein provided,
and Guarantor, by reason of its relationship to Borrower and in order to induce Lender to make the
Loan, has agreed to execute this Guaranty;
WHEREAS, all documents executed in conjunction with the Note and Loan Agreement, as from time
to time renewed, modified or extended, are hereinafter referred to as the Loan Documents; and
WHEREAS, Guarantor will directly benefit from the extension of credit from Lender to Borrower.
NOW, THEREFORE, in consideration of the extension of credit by Lender to Borrower, the mutual
promises contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Guarantor agrees as follows:
1.
Guaranty of Payment
. For good and valuable consideration, Guarantor absolutely and
unconditionally guarantees, jointly and severally with any and all other guarantors now or
hereafter guarantying the Note, full and punctual payment and satisfaction of the Indebtedness of
Borrower to Lender, and the performance and discharge of all Borrowers obligations under the Note
and the Loan Documents. This is a guaranty of payment and performance and not of collection.
Lender may enforce this Guaranty against Guarantor even when Lender has not commenced or exhausted
Lenders remedies against Borrower or any other party obligated to pay the Indebtedness or against
any collateral securing the Indebtedness, this Guaranty or any other guaranty of the Indebtedness.
Guarantor will make any payments to Lender or its order, on demand, in legal tender of the United
States of America, in same-day funds, without set-off or deduction or counterclaim, and will
otherwise perform Borrowers obligations
under the Note and the Loan Documents. Under this Guaranty, Guarantors liability is
unlimited and Guarantors obligations are continuing.
If Lender presently holds one or more guaranties, or hereafter receives additional guaranties
from Guarantor, Lenders rights under all guaranties shall be cumulative. This Guaranty shall not
(unless specifically provided below to the contrary) affect or invalidate any such other
guaranties. Guarantors liability will be Guarantors aggregate liability under the terms of this
Guaranty and any such other unterminated guaranties.
2.
Definition of Indebtedness
. The word Indebtedness as used in this Guaranty shall
mean all of the principal amount outstanding from time to time and at any one or more times,
accrued unpaid interest thereon, and all collection costs and legal expenses related thereto
permitted by law, and attorneys fees arising from any and all debts, liabilities and obligations
of every nature or form, now existing or hereafter arising or acquired, that Borrower individually
or collectively or interchangeably with others, owes or will owe Lender. Indebtedness includes,
without limitation, loans, advances (including, but not limited to, protective advances made by
Lender), debts, overdraft indebtedness, credit card indebtedness, lease obligations, liabilities
and obligations under any interest rate protection agreements or foreign currency exchange
agreements or commodity price protection agreements, other obligations and liabilities of Borrower,
or any one or more of them, and any present or future judgments against Borrower, or any one or
more of them, future advances, loans or transactions that renew, extend, modify, refinance,
consolidate or substitute these debts, liabilities and obligations whether: voluntarily or
involuntarily incurred; due or to become due by their terms or acceleration; absolute or
contingent; liquidated or unliquidated; determined or undetermined; direct or indirect; primary or
secondary in nature or arising from a guaranty or surety; secured or unsecured; joint or several or
joint and several; evidenced by a negotiable or non-negotiable instrument or writing; originated by
Lender or another or others; barred or unenforceable against Borrower for any reason whatsoever;
for any transactions that may be voidable for any reason (such as infancy, insanity, ultra vires or
otherwise); and originated then reduced or extinguished and then afterwards increased or
reinstated. The definition of Indebtedness shall also include the amount of any payments made to
Lender on behalf of Borrower (including payments resulting from liquidation of collateral) which
are recovered from Lender by a trustee, receiver, creditor or other party pursuant to applicable
Federal or state law (the Surrendered Payments). In the event that Lender makes any Surrendered
Payments (including pursuant to a negotiated settlement), the Surrendered Payments shall
immediately be reinstated as Indebtedness, regardless of whether Lender has surrendered or
cancelled this Guaranty prior to returning the Surrendered Payments.
3.
Continuing Guaranty
. THIS IS A CONTINUING GUARANTY UNDER WHICH GUARANTOR AGREES
TO GUARANTEE THE FULL AND PUNCTUAL PAYMENT, PERFORMANCE AND SATISFACTION OF THE INDEBTEDNESS OF
BORROWER TO LENDER, NOW EXISTING OR HEREAFTER ARISING OR ACQUIRED, ON AN OPEN AND CONTINUING BASIS.
ACCORDINGLY, ANY PAYMENTS MADE ON THE INDEBTEDNESS WILL NOT DISCHARGE OR DIMINISH GUARANTORS
OBLIGATIONS AND LIABILITY UNDER THIS GUARANTY FOR ANY REMAINING AND SUCCEEDING INDEBTEDNESS EVEN
WHEN ALL OR PART OF THE OUTSTANDING INDEBTEDNESS MAY BE A ZERO BALANCE FROM TIME TO TIME.
Guarantor agrees that the obligations of Guarantor hereunder shall be primary obligations,
shall not be subject to any counterclaim, set-off, abatement, deferment or defense based upon any
claim that Guarantor may have against Lender, Borrower, any other guarantor of the Indebtedness or
any other person or entity, and shall remain in full force and effect without regard to, and shall
not be released, discharged or affected in any way by, any circumstance or condition (whether or
not Guarantor shall have any knowledge thereof), including without limitation:
(a) any lack of validity or enforceability of the Indebtedness or any of the Loan
Documents;
(b) any termination, amendment, modification or other change in the Indebtedness or any
of the Loan Documents, including, without limitation, any modification of the interest
rate(s) described therein;
(c) any furnishing, exchange, substitution or release of any collateral securing
repayment of the Loan, or any failure to perfect any lien in such collateral;
(d) any failure, omission or delay on the part of Borrower, Guarantor, any other
guarantor of the Indebtedness or Lender to conform or comply with any term of any of the
Loan Documents or any failure of Lender to give notice of any Event of Default (as defined
in the Loan Documents);
(e) any waiver, compromise, release, settlement or extension of time of payment or
performance or observance of any of the obligations or agreements contained in any of the
Loan Documents;
(f) any action or inaction by Lender under or in respect of any of the Loan Documents,
any failure, lack of diligence, omission or delay on the part of Lender to enforce, assert
or exercise any right, power or remedy conferred on it in any of the Loan Documents, or any
other action or inaction on the part of Lender;
(g) any voluntary or involuntary bankruptcy, insolvency, reorganization, arrangement,
readjustment, assignment for the benefit of creditors, composition, receivership,
liquidation, marshalling of assets and liabilities or similar events or proceedings with
respect to Borrower, Guarantor or any other guarantor of the Indebtedness, as applicable, or
any of their respective property or creditors, or any action taken by any trustee or
receiver or by any court in any such proceeding;
(h) any merger or consolidation of Borrower into or with any entity, or any sale, lease
or transfer of any of the assets of Borrower, Guarantor or any other guarantor of the
Indebtedness to any other person or entity;
(i) any change in the ownership of Borrower or any change in the relationship between
Borrower, Guarantor or any other guarantor of the Indebtedness, or any termination of any
such relationship;
(j) any release or discharge by operation of law of Borrower or any other guarantor of
the Indebtedness from any obligation or agreement contained in any of the Loan Documents;
(k) any other occurrence, circumstance, happening or event, whether similar or
dissimilar to the foregoing and whether foreseen or unforeseen, which otherwise might
constitute a legal or equitable defense or discharge of the liabilities of a guarantor or
surety or which otherwise might limit recourse against Borrower or Guarantor; or
(l) any invalidity, irregularity or unenforceability in whole or in part (including
with respect to any netting provision) of any interest rate swap, basis swap, forward rate,
interest rate option, collar or corridor agreement or transaction or any similar transaction
between Borrower
and Lender or any confirmation, instrument or agreement required thereunder or related
thereto, or any transaction entered into thereunder, or any limitation on the liability of
Borrower thereunder or any limitation on the method or terms of payment thereunder which may
now or hereafter be caused or imposed in any manner whatsoever.
4.
Duration of Guaranty
. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or to Borrower, and
will continue in full force until all the Indebtedness incurred shall have been fully and finally
paid and satisfied and all of Guarantors other obligations under this Guaranty shall have been
performed in full. Release of any other guarantor or termination of any other guaranty of the
Indebtedness shall not affect the liability of Guarantor under this Guaranty.
It is anticipated
that fluctuations may occur in the aggregate amount of the Indebtedness covered by this Guaranty,
and Guarantor specifically acknowledges and agrees that reductions in the amount of the
Indebtedness, even to zero dollars ($0.00), shall not constitute a termination of this Guaranty.
This Guaranty is binding upon Guarantor and Guarantors heirs, successors and assigns so long as
any of the Indebtedness remains unpaid and even though the Indebtedness may from time to time be
zero dollars ($0.00).
5.
Binding Nature; Successors and Assigns
. Guarantor agrees that this Guaranty shall
be a continuing guaranty and shall inure to the benefit of and may be enforced by Lender and any
subsequent holder of the Note and/or successor in interest under the Loan Agreement and Loan
Documents (Guarantor hereby consenting to any transfer of the Note, Loan Agreement, and/or Loan
Documents without notice). This Guaranty shall be binding upon and inure to the benefit of the
parties, their successors and assigns. This Guaranty shall bind Guarantors estate as to the
Indebtedness created both before and after Guarantors death or incapacity, regardless of Lenders
actual notice of Guarantors death.
6.
Representations and Warranties
. Guarantor represents and warrants to Lender that:
(a) no representations or agreements of any kind have been made to Guarantor which would limit or
qualify in any way the terms of this Guaranty; (b) the making of the Loan by Lender to Borrower
confers a real and substantial benefit to Guarantor and is fully supportive of and provides
valuable consideration for the execution of this Guaranty; (c) Guarantor is interested in the
affairs of Borrower and is thoroughly familiar with the business affairs, books, records, financial
condition and operations of Borrower; (d) Guarantor has full power, right and authority to enter
into this Guaranty, and this Guaranty has been duly executed and delivered by Guarantor and
constitutes the legally enforceable obligation of Guarantor in accordance with its terms; (e) the
provisions of this Guaranty do not conflict with or result in a default under any agreement or
other instrument binding upon Guarantor and do not result in a violation of any law, regulation,
court decree or order applicable to Guarantor; (f) Guarantor has not and will not, without the
prior written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise
dispose of all or substantially all of Guarantors assets, or any interest therein; (g) upon
Lenders request, Guarantor will provide to Lender financial and credit information in form
acceptable to Lender, and all such financial information which currently has been, and all future
financial information which will be provided to Lender is and will be true and correct in all
material respects and fairly present Guarantors financial condition as of the dates the financial
information is provided; (h) no material adverse change has occurred in Guarantors financial
condition since the date of the most recent financial statements provided to Lender and no event
has occurred which may materially adversely affect Guarantors financial condition; (i) Guarantor
has not filed any petition nor has any petition been filed against Guarantor in bankruptcy or
insolvency or reorganization or for the appointment of a receiver or trustee or for the arrangement
of debts, nor has Guarantor been the subject of such action, nor has such action been threatened by
or against Guarantor, and Guarantor is not insolvent nor will Guarantor be rendered insolvent by
the consummation of the Loan and execution of this Guaranty; (j) no litigation, claim,
investigation, administrative proceeding or similar action (including those for unpaid taxes)
against Guarantor is pending or threatened; (k) Lender has made no representation to
Guarantor as
to the creditworthiness of Borrower; (l) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrowers financial condition; and (m) that
if any interest rate swap, basis swap, forward rate, interest rate option, collar or corridor
agreement or transaction or any similar transaction between Borrower and Lender shall at any time
be in effect, (x) Guarantor has received and examined copies of each document relating to such
transaction, the observance and performance of which by Borrower is hereby guaranteed; (y)
Guarantor will benefit from Lender entering into each such agreement and any transactions
thereunder with Borrower, and Guarantor has determined that the execution and delivery by Guarantor
of this Guaranty are necessary and convenient to the conduct, promotion and attainment of the
business of Guarantor; and (z) Lender has no duty to determine whether any such agreement or
transaction will be or has been entered into by Borrower for purposes of hedging interest rate,
currency exchange rate, or other risks arising in its businesses or affairs and not for purposes of
speculation, or is otherwise inappropriate for Borrower. Guarantor agrees to keep adequately
informed from such means of any facts, events, or circumstances which might in any way affect
Guarantors risks under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any information or documents
acquired by Lender in the course of its relationship with Borrower or to monitor the performance
of Borrower under the Loan Documents. It is the intention of the parties that Lender may rely
completely on this Guaranty for its repayment of the Indebtedness whether or not Borrower is
creditworthy and whether or not it would be prudent to make loans or advances to Borrower or to
permit the same to remain outstanding.
7.
Guarantors Authorizations
. Guarantor authorizes Lender, without notice or demand
and without lessening Guarantors liability under this Guaranty, from time to time: (a) to make
one or more additional secured or unsecured loans to Borrower, to lease equipment or other goods to
Borrower, or otherwise to extend additional credit to Borrower; (b) to alter, compromise, renew,
extend, accelerate, or otherwise change one or more times the time for payment or other terms of
the Indebtedness or any part of the Indebtedness, including increases and decreases of the rate of
interest on the Indebtedness; extensions may be repeated and may be for longer than the original
loan term; (c) to take and hold security for the payment of this Guaranty or the Indebtedness,
and exchange, enforce, waive, subordinate, fail or decide not to perfect, and release any such
security, with or without the substitution of new collateral; (d) to release, substitute, agree
not to sue, or deal with any one or more of Borrowers sureties, endorsers, or other guarantors on
any terms or in any manner Lender may choose; (e) to determine how, when and what application of
payments and credits shall be made on the Indebtedness; (f) to apply such security and direct the
order or manner of sale thereof, including without limitation, any nonjudicial sale permitted by
the terms of the controlling security agreement or mortgage, as Lender in its discretion may
determine; (g) to sell, transfer, assign or grant participations in all or any part of the
Indebtedness; and (h) to assign or transfer this Guaranty in whole or in part.
8.
Waivers by Guarantor
. Except as prohibited by applicable law, Guarantor waives any
right to require Lender: (a) to continue lending money or to extend other credit to Borrower;
(b) to make any presentment, protest, demand, or notice of any kind, including notice of any
nonpayment of the Indebtedness or of any nonpayment related to any collateral, or notice of any
action or nonaction on the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or additional loans or
obligations; (c) to resort for payment or to proceed directly or at once against any person,
including Borrower or any other guarantor; (d) to proceed directly against or exhaust any
collateral held by Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or private sale of personal property security
held by Lender from Borrower or to comply with any other applicable provisions of the Uniform
Commercial Code; (f) to pursue any other remedy within Lenders power; or (g) to commit any act
or omission of any kind, or at any time, with respect to any matter whatsoever.
Guarantor also waives any relief available under valuation and appraisement laws and any and
all rights or defenses based on suretyship or impairment of collateral including, but not limited
to, any rights or defenses arising by reason of: (i) any one action or anti-deficiency law or
any other law which may prevent Lender from bringing any action, including a claim for deficiency,
against Guarantor, before or after Lenders commencement or completion of any foreclosure action,
either judicially or if permitted by applicable law by exercise of a power of sale; (ii) any
election of remedies by Lender which destroys or otherwise adversely affects Guarantors
subrogation rights or Guarantors rights to proceed against Borrower for reimbursement, including
without limitation, any loss of rights Guarantor may suffer by reason of any law limiting,
qualifying, or discharging the Indebtedness; (iii) any disability or other defense of Borrower,
of any other guarantor, or of any other person, or by reason of the cessation of Borrowers
liability from any cause whatsoever, other than payment in full in legal tender, of the
Indebtedness; (iv) any right to claim discharge of the Indebtedness on the basis of unjustified
impairment of any collateral for the Indebtedness; (v) any statute of limitations, if at any time
any action or suit brought by Lender against Guarantor is commenced, there is outstanding
Indebtedness which is not barred by any applicable statute of limitations; or (vi) any defenses
given to guarantors at law or in equity other than actual payment and performance of the
Indebtedness. Without limiting the provisions of the last two (2) sentences of Section 2 above, if
payment is made by Borrower, whether voluntarily or otherwise, or by any third party, on the
Indebtedness and thereafter Lender is forced to remit the amount of that payment to Borrowers
trustee in bankruptcy or to any similar person under any federal or state bankruptcy law or law for
the relief of debtors, the Indebtedness shall be considered unpaid for the purpose of the
enforcement of this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any deductions to the amount
guaranteed under this Guaranty for any claim of setoff, counterclaim, counter demand, recoupment or
similar right, whether such claim, demand or right may be asserted by the Borrower, the Guarantor,
or both.
Guarantor warrants and agrees that each of the waivers set forth above is made with
Guarantors full knowledge of its significance and consequences and that, under the circumstances,
the waivers are reasonable and not contrary to public policy or law. If any such waiver is
determined to be contrary to any applicable law or public policy, such waiver shall be effective
only to the extent permitted by law or public policy.
9.
Acknowledgments of Guarantor
. Guarantor acknowledges and agrees that Lender has
not made any representations or warranties with respect to, does not assume any responsibility to
Guarantor for, and has no duty to provide information to Guarantor regarding, the collectability or
enforceability of the Indebtedness or the financial condition of Borrower or any Guarantor.
Guarantor has independently determined the collectability and enforceability of the Indebtedness
and, until the Indebtedness is paid in full, will independently and without reliance on Lender
continue to make such determinations. Guarantor agrees that Guarantor has read and fully
understands the terms of this Guaranty, Guarantor has had the opportunity to be advised by
Guarantors attorney with respect to this Guaranty, and the Guaranty fully reflects Guarantors
intentions and parol evidence is not required to interpret the terms of this Guaranty. Guarantor
hereby indemnifies and holds Lender harmless for, from and against all losses, claims, damages, and
costs (including Lenders attorneys fees) suffered or incurred by Lender as a result of any breach
by Guarantor of the warranties, representations and agreements of this Section.
10.
Subordination of Debts to Guarantor
. Guarantor agrees that the Indebtedness,
whether now existing or hereafter created, shall be superior to any claim that Guarantor may now
have or hereafter acquire against Borrower, whether or not Borrower becomes insolvent. Guarantor
hereby expressly subordinates any claim Guarantor may have against Borrower, upon any account
whatsoever, to any
claim that Lender may now or hereafter have against Borrower. In the event of insolvency and
consequent liquidation of the assets of Borrower, through bankruptcy, by an assignment for the
benefit of creditors, by voluntary liquidation, or otherwise, the assets of Borrower applicable to
the payment of the claims of both Lender and Guarantor shall be paid to Lender and shall be first
applied by Lender to the Indebtedness. Guarantor does hereby assign to Lender all claims which it
may have or acquire against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose of assuring to
Lender full payment in legal tender of the Indebtedness. If Lender so requests, any notes or
credit agreements now or hereafter evidencing any debts or obligations of Borrower to Guarantor
shall be marked with a legend that the same are subject to this Guaranty and shall be delivered to
Lender. Guarantor agrees, and Lender is hereby authorized, in the name of Guarantor, from time to
time to file financing statements and continuation statements and to execute documents and to take
such other actions as Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
Notwithstanding any payment or performance by Guarantor pursuant to this Guaranty, Guarantor
shall not be entitled to be subrogated to any rights of Lender against Borrower or any other
guarantor of the Indebtedness prior to the time at which the Indebtedness is repaid in full and all
periods under applicable bankruptcy law for the contest of any payment by Guarantor or Borrower as
a preferential or fraudulent payment have expired, and Guarantor knowingly and with the advise of
counsel waives and releases all rights and claims to indemnification, reimbursement and
contribution Guarantor now has or at any time hereafter may have against Borrower or Borrowers
estate prior to the time at which the Indebtedness is repaid in full and all periods under
applicable bankruptcy law for the contest of any payment by Guarantor or Borrower as a preferential
or fraudulent payment have expired, including, without limitation, any rights which may allow
Borrower, Borrowers successors, a creditor of Borrower, or a trustee in bankruptcy of the Borrower
to claim in bankruptcy or any other similar proceedings that any payment made by Borrower or
Borrowers successors and assigns to Lender was on behalf of or for the benefit of Guarantor and
that such payment is recoverable by Borrower, a creditor or trustee in bankruptcy of Borrower as a
preferential payment, fraudulent conveyance, payment of an insider or any other classification of
payment which may otherwise be recoverable from Lender.
11.
Setoff
. To the extent permitted by applicable law, Lender reserves a right of
setoff in all Guarantors accounts with Lender (whether checking, savings, or some other account).
This includes all accounts Guarantor holds jointly with someone else and all accounts Guarantor may
open in the future. However, this does not include any IRA or Keogh accounts, or any trust
accounts for which setoff would be prohibited by law. Guarantor authorizes Lender, to the extent
permitted by applicable law, to hold these funds if there is a default, and Lender may apply the
funds in these accounts to pay what Guarantor owes under the terms of this Guaranty.
12.
Applicable Law
. This Guaranty will be governed by federal law applicable to
Lender and, to the extent not preempted by federal law, the laws of the State of Minnesota without
regard to its conflicts of law provisions.
13.
CHOICE OF VENUE
. GUARANTOR HEREBY AGREES THAT ALL ACTIONS OR PROCEEDINGS
INITIATED BY GUARANTOR AND ARISING DIRECTLY OR INDIRECTLY OUT OF THIS GUARANTY OR THE OTHER LOAN
DOCUMENTS SHALL BE LITIGATED IN THE DISTRICT COURT OF HENNEPIN COUNTY, MINNESOTA, OR AT LENDERS
DISCRETION IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA. GUARANTOR HEREBY
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING
COMMENCED BY LENDER IN SUCH COURT. GUARANTOR WAIVES ANY CLAIM THAT HENNEPIN COUNTY, MINNESOTA, OR
THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA IS AN INCONVENIENT FORUM OR AN
IMPROPER FORUM BASED ON LACK OF VENUE. THE EXCLUSIVE CHOICE OF FORUM FOR GUARANTOR SET FORTH
IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT, BY LENDER, OF ANY JUDGMENT
OBTAINED IN ANY OTHER FORUM OR THE TAKING, BY LENDER, OF ANY ACTION TO ENFORCE THE SAME IN ANY
OTHER APPROPRIATE JURISDICTION, AND GUARANTOR HEREBY WAIVES THE RIGHT, IF ANY, TO COLLATERALLY
ATTACK ANY SUCH JUDGMENT OR ACTION.
14.
WAIVER OF RIGHT TO JURY TRIAL
. LENDER AND GUARANTOR HEREBY WAIVE THE RIGHT TO ANY
JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER LENDER OR GUARANTOR AGAINST
THE OTHER.
15.
Fees Relating to Enforcement
. Guarantor agrees to pay upon demand all of Lenders
costs and expenses, including Lenders attorneys fees and Lenders legal expenses, incurred in
connection with the enforcement of this Guaranty. Lender may hire or pay someone else to help
enforce this Guaranty, and Guarantor shall pay the costs and expenses of such enforcement. Costs
and expenses include Lenders attorneys fees and legal expenses whether or not there is a lawsuit,
including attorneys fees and legal expenses for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment
collection services. Guarantor also shall pay all court costs and such additional fees as may be
directed by the court.
16.
Annual Financial Information
. Guarantor agrees to furnish Lender Guarantors
financial statements included as a part of the consolidated financial statement of the Borrower.
17.
Remedy for Failure to Deliver Financial Statements
. Upon any failure of Guarantor
to deliver Guarantors periodic financial statements as required pursuant to Section 16 above,
Lender shall have the option of imposing an administrative fee of Five Hundred Dollars ($500.00)
for each such failure and for each entity for which such financial statements were required to be
delivered. Lender shall notify Guarantor of Guarantors failure to deliver such financial
statements and, if Guarantor does not cure such failure within thirty (30) days after receipt of
such notice from Lender, Lender shall have the right to impose such fee by delivering written
notice thereof to Guarantor. Within ten (10) days after receipt of such written notice, Guarantor
shall pay the fee to Lender. Lenders receipt of such fee in any instance shall not relieve
Guarantor from its obligation to deliver the required financial statements, whether for the
then-current period or any future period. A waiver by Lender of its right to impose such fee shall
not constitute a waiver of Lenders right to impose such fee upon any future failure of Guarantor
to deliver the required financial statements.
18.
No Waiver by Lender
. Lender shall not be deemed to have waived any rights under
this Guaranty unless such waiver is given in writing and signed by Lender. No delay or omission on
the part of Lender in exercising any right shall operate as a waiver of such right or any other
right. A waiver by Lender of a provision of this Guaranty shall not prejudice or constitute a
waiver of Lenders right otherwise to demand strict compliance with that provision or any other
provision of this Guaranty. No prior waiver by Lender, nor any course of dealing between Lender
and Guarantor, shall constitute a waiver of any of Lenders rights or of any of Guarantors
obligations as to any future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not constitute continuing
consent to subsequent instances where such consent is required and in all cases such consent may be
granted or withheld in the sole discretion of Lender.
IN WITNESS WHEREOF, the undersigned Guarantor has executed and delivered this Guaranty to take
effect as of the date first above written.
|
|
|
|
|
|
GUARANTOR:
Taurus Numeric Tool, Inc.
|
|
|
By:
|
|
|
|
|
Name:
|
|
|
|
|
Title:
|
|
|
|
|
STATE OF MINNESOTA
|
)
|
|
) SS
|
COUNTY OF
|
)
|
On this
_____
day of March, 2011, before me appeared
, to me personally known,
who, being by me duly sworn, did say that he/she is the
of Taurus Numeric Tool, Inc.,
a Minnesota corporation, and that said instrument was signed on behalf of said company by its
authority, and said person acknowledged said instrument to be the free act and deed of said
company.
In Testimony Whereof, I have hereunto set my hand and affixed my official seal the day and
year first above written.
|
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
|
|
|
|
|
|
Notary Public, State of
|
|
|
|
|
|
|
|
|
|
|
|
My Commission Expires:
|
|
|
|
|
|
|
|
|
|