FIFTH AMENDMENT TO TERM LOAN AGREEMENT

 

THIS FIFTH AMENDMENT TO TERM LOAN AGREEMENT (this “Amendment”) is made and
entered into as of January 9, 2017, to be made effective as of November 27,
2016, by and between WSI INDUSTRIES, INC., a Minnesota corporation (the
“Borrower”) and BMO HARRIS BANK N.A., a national banking association, successor
by merger to M&I Marshall & Ilsley Bank (the “Bank”).

 

RECITALS:

 

A.       The Borrower and the Bank are parties to a certain Loan Agreement dated
as of May 8, 2013, as amended by an amendment dated January 31, 2014, an
amendment dated November 27, 2015, an amendment dated February 28, 2016, and an
amendment dated August 26, 2016 (as so amended, the “Loan Agreement”). All
capitalized terms not otherwise defined herein shall have the meanings given to
them in the Loan Agreement.

 

B.       The Borrower has requested that the Bank amend certain provisions of
the Loan Agreement, and the Bank has agreed to do so upon the terms and subject
to the conditions set forth in this Amendment.

 

AGREEMENTS:

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and for other good and valuable consideration, the
nature, receipt and sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:

 

Section 1. Delivery of Documents. At or prior to the execution of this
Amendment, and as a condition precedent to the effectiveness of this Amendment,
the Borrower shall have satisfied the following conditions and delivered or
caused to be delivered to the Bank the following documents each dated such date
and in form and substance satisfactory to the Bank and duly executed by all
appropriate parties:

 

(a)       This Amendment.

 

(b)       An Acknowledgment of Guarantors, duly executed by each Guarantor.

 

(c)       A copy of the resolutions of the Board of Directors of the Borrower
authorizing the execution, delivery and performance of this Amendment certified
as true and accurate by an officer of the Borrower, along with a certificate of
such officer which (i) certifies that there has been no amendment to either the
Articles of Incorporation or the Bylaws of the Borrower since true and accurate
copies of the same were last delivered and certified to the Bank, and that said
Articles of Incorporation or the Bylaws remain in full force and effect as of
the date of this Amendment, (ii) identifies each officer of the Borrower
authorized to execute this Amendment and any other instrument or agreement
executed by the Borrower in connection with this Amendment, and (iii) sets forth
specimen signatures of each officer of the Borrower referred to above and
identifies the office or offices held by such officer.

 

(d)       Payment to the Bank of an amendment fee in the amount of $5,000, which
shall be fully earned and non-refundable when paid.

 

(e)       Such other documents or instruments as the Bank may reasonably
require.

 

 

   

 

Section 2. Amendment to Loan Agreement.

 

(a) Financial Covenants. Section 5.8 of the Loan Agreement is amended and
restated in its entirety to read as follows:

 

5.8. Financial Covenants.

 

5.8.1       Minimum Liquidity. So long as the Note shall remain not fully
repaid, the Borrower shall hold, at all times, Liquidity of not less than
$3,000,000.00.

 

The term “Liquidity” means the Borrower’s cash balances on deposit in bank
accounts.

 

5.8.2       Ratio of Debt to Tangible Net Worth. So long as the Note shall
remain not fully repaid, the ratio of the Borrower’s Debt to Tangible Net Worth
shall not exceed 1.5 to 1.0 measured at the end of each fiscal quarter end
basis.

 

“Debt” means (i) all items of indebtedness or liability which in accordance with
generally accepted accounting principles would be included in determining total
liabilities as shown on the liabilities side of a balance sheet as at the date
as of which Debt is to be determined and (ii) indebtedness secured by any
mortgage, pledge, lien or security interest existing on property owned by the
Person whose Debt is being determined, whether or not the indebtedness secured
thereby shall have been assumed, and (iii) guaranties, endorsements (other than
for purposes of collection in the ordinary course of business) and other
contingent obligations in respect of, or to purchase or otherwise acquire
indebtedness of others; and

 

“Tangible Net Worth” of any Person means the excess of:

 

(a)       the tangible assets of such Person, which, in accordance with
generally accepted accounting principles, are tangible assets, after deducting
adequate reserves in each case where, in accordance with generally accepted
accounting principles, a reserve is proper, less

(b)       all Debt of such Person;

 

provided, however, that (i) inventory shall be taken into account on the basis
of the cost or current market value, whichever is lower, (ii) in no event shall
there be included as such tangible assets patents, trademarks, trade names,
copyrights, licenses, good will, deferred taxes, prepaid expenses, deferred
charges or treasury stock or any securities or Debt of such Person or any other
securities unless the same are readily marketable in the United States of
America or entitled to be used as a credit against Federal income tax
liabilities, (iii) securities included as such tangible assets shall be taken
into account at their current market price or cost, whichever is lower, and (iv)
any write-up in the book value of any assets shall not be taken into account.

 

5.8.3       [Intentionally Omitted].

 

5.8.4       [Intentionally Omitted].

 

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5.8.5       Maximum Capital Expenditures. So long as the Note shall remain not
fully repaid, the Borrower shall not permit capital expenditures, as determined
at the end of each fiscal quarter end, to exceed $350,000 in the aggregate for
any fiscal year, beginning with the 2017 fiscal year.

 

Section 3. Representations; No Default. The Borrower represents and warrants
that: (a) the representations and warranties of the Borrower contained in
Article 4 of the Loan Agreement are true and correct on and as of the date
hereof, except to the extent that such representations and warranties
specifically refer to an earlier date, in which case they shall be true and
correct as of such earlier date, (b) the Borrower has the power and legal right
and authority to enter into this Amendment and has duly authorized the execution
and delivery of this Amendment and other agreements and documents executed and
delivered by the Borrower in connection herewith, (c) neither this Amendment nor
the agreements contained herein contravene or constitute an Event of Default
under the Loan Agreement or a default under any other agreement, instrument or
indenture to which the Borrower is a party or a signatory, or any provision of
the Borrower’s Articles of Incorporation or Bylaws or, to the best of the
Borrower’s knowledge, any other agreement or requirement of law, or result in
the imposition of any lien or other encumbrance on any of its property under any
agreement binding on or applicable to the Borrower or any of its property
except, if any, in favor of the Bank, (d) no consent, approval or authorization
of or registration or declaration with any party, including but not limited to
any governmental authority, is required in connection with the execution and
delivery by the Borrower of this Amendment or other agreements and documents
executed and delivered by the Borrower in connection herewith or the performance
of obligations of the Borrower herein described, except for those which the
Borrower has obtained or provided and as to which the Borrower has delivered
certified copies of documents evidencing each such action to the Bank, (e) no
events have taken place and no circumstances exist at the date hereof which
would give the Borrower grounds to assert a defense, offset or counterclaim to
the obligations of the Borrower under the Loan Agreement or any of the other
Loan Documents, (f) there are no known claims, causes of action, suits, debts,
liens, obligations, liabilities, demands, losses, costs and expenses (including
attorneys’ fees) of any kind, character or nature whatsoever, fixed or
contingent, which the Borrower may have or claim to have against the Bank, which
might arise out of or be connected with any act of commission or omission of the
Bank existing or occurring on or prior to the date of this Amendment, including,
without limitation, any claims, liabilities or obligations arising with respect
to the indebtedness evidenced by the Note, and (g) no Event of Default has
occurred and is continuing under the Loan Agreement.

 

Section 4. Affirmation, Further References. The Bank and the Borrower each
acknowledge and affirm that the Loan Agreement, as hereby amended, is hereby
ratified and confirmed in all respects and all terms, conditions and provisions
of the Loan Agreement (except as amended by this Amendment) and of each of the
other Loan Documents shall remain unmodified and in full force and effect. All
references in any document or instrument to the Loan Agreement is hereby amended
and shall refer to the Loan Agreement as amended by this Amendment.

 

Section 5. Severability. Whenever possible, each provision of this Amendment and
any other statement, instrument or transaction contemplated hereby or thereby or
relating hereto or thereto shall be interpreted in such manner as to be
effective, valid and enforceable under the applicable law of any jurisdiction,
but, if any provision of this Amendment or any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto shall
be held to be prohibited, invalid or unenforceable under the applicable law,
such provision shall be ineffective in such jurisdiction only to the extent of
such prohibition, invalidity or unenforceability, without invalidating or
rendering unenforceable the remainder of such provision or the remaining
provisions of this Amendment or any other statement, instrument or transaction
contemplated hereby or thereby or relating hereto or thereto in such
jurisdiction, or affecting the effectiveness, validity or enforceability of such
provision in any other jurisdiction.

 

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Section 6. Successors. This Amendment shall be binding upon the Borrower, the
Bank and their respective successors and assigns, and shall inure to the benefit
of the Borrower, the Bank and to the respective successors and assigns of the
Bank.

 

Section 7. Costs and Expenses. The Borrower agrees to reimburse the Bank, upon
execution of this Amendment, for all reasonable out-of-pocket expenses
(including attorneys’ fees and legal expenses of counsel for the Bank) incurred
in connection with the Loan Agreement, including in connection with the
negotiation, preparation and execution of this Amendment and all other documents
negotiated, prepared and executed in connection with this Amendment, and in
enforcing the obligations of the Borrower under this Amendment, and to pay and
save the Bank harmless from all liability for, any stamp or other taxes which
may be payable with respect to the execution or delivery of this Amendment.

 

Section 8. Headings. The headings of various sections of this Amendment have
been inserted for reference only and shall not be deemed to be a part of this
Amendment.

 

Section 9. Counterparts; Digital Copies. This Amendment may be executed in
several counterparts as deemed necessary or convenient, each of which, when so
executed, shall be deemed an original, provided that all such counterparts shall
be regarded as one and the same document, and any party to this Amendment may
execute any such agreement by executing a counterpart of such agreement. A
facsimile or digital copy (pdf) of this signed Amendment shall be deemed to be
an original thereof.

 

Section 10. Release of Rights and Claims. Borrower, for itself and its
successors and assigns, hereby releases, acquits, and forever discharges Bank
and its successors and assigns for any and all manner of actions, suits, claims,
charges, judgments, levies and executions occurring or arising from the
transactions entered into with Bank prior to entering into this Amendment
whether known or unknown, liquidated or unliquidated, fixed or contingent,
direct or indirect which Borrower may have against Bank.

 

Section 11. Governing Law. This Amendment shall be governed by the internal laws
of the State of Minnesota, without giving effect to conflict of law principles
thereof.

 

Section 12. No Waiver. Nothing contained in this Amendment (or in any other
agreement or understanding between the parties) shall constitute a waiver of, or
shall otherwise diminish or impair, the Bank’s rights or remedies under the Loan
Agreement or any of the other Loan Documents, or under applicable law.

 

Section 13. Revolving Loan Agreement. The parties hereto acknowledge and agree
that (i) the “Commitment” under the Revolving Loan Agreement (as such term is
defined in the Revolving Loan Agreement) is hereby terminated, (ii) the
Revolving Note (as defined in the Revolving Loan Agreement) is hereby deemed
cancelled and rendered null and void and shall be of no further force or effect
and (iii) the Revolving Loan Agreement is hereby terminated and rendered null
and void and shall be of no further force or effect, except for such provisions
which survive termination of the Revolving Loan Agreement by their terms.

 

[signature page follows]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
as of the day and year first above written.

 

BORROWER: WSI INDUSTRIES, INC.,
a Minnesota corporation       By: /s/ Paul D. Sheely     Paul D. Sheely, Chief
Financial Officer       BANK:

BMO HARRIS BANK N.A.,

a national banking association

        By: /s/ Kevin Rohrer    

Kevin Rohrer, Vice President 

 

 

 

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