LOAN
AGREEMENT


 


THIS
LOAN AGREEMENT (“Agreement”) is made as of February 15, 2017, by and between WSI INDUSTRIES, INC., a Minnesota
corporation (“Borrower”), and TRADITION CAPITAL BANK, a Minnesota banking corporation (“Lender”).


 


RECITALS


 


A.
The Borrower has requested from the Lender an extension of credit in the form of a term loan in the amount of Three Million Seven
Hundred Thousand and 00/100 Dollars ($3,700,000.00) (the “Loan”), the proceeds are to be used by Borrower to
refinance existing debt on certain property located at 213 Chelsea Road, City of Monticello, County of Wright, State of Minnesota
(the “Property”).


 


B.
The Lender is willing to agree to provide the Loan to the Borrower on the terms and conditions hereinafter contained.


 


NOW,
THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows:


 


1.
Documents Delivered by Borrower. To induce the Lender to commit to make the requested Loan, and as a condition of making
the Loan to the Borrower, the Borrower shall, on the date hereof, deliver or caused to be delivered to Lender the following, all
of which shall be in form and substance reasonably acceptable to the Lender:


 


	 	1.1.	Title
    Insurance Policy. Deliver to Lender a Lender’s Title Policy, hereinafter called “Title Policy,” from
    Guaranty Commercial Title, Inc., a Minnesota corporation (the “Title Company”), issued to Lender in the
    amount of the Loan with respect to the Mortgage and insuring that the Mortgage is a valid first lien on the fee simple interest
    in the Property to the extent it purports to be free and clear of mechanic’s liens, materialmen’s liens, taxes,
    easements, or claims of easements not shown in the public records, special assessments, rights of parties in possession and
    questions of survey and subject only to exceptions specifically approved in writing by Lender.
	 	 	 
	 	1.2.	Phase
    I Environmental Report. A report of a phase I environmental site assessment of the Property (“Phase I”)
    conducted by Braun Intertec Corporation dated February 1, 2017, which discloses no existing or potential hazardous waste or
    environmental concerns with respect to the Property. 
	 	 	 
	 	1.3.	Certified
    Survey. An ALTA/NSPS Survey of the Property (“Survey”) prepared by Clark Engineering Corporation dated
    April 3, 2013 and certified to the Borrower, Lender and Title Company, which shall comply with the 2011 ALTA Survey Minimum
    Standard Detail Requirements and indicate all applicable Table A requirements, including without limitation the location of
    all improvements (if any), utilities and easements thereon along with an Affidavit of Survey executed by the Borrower. 


 




    	 	 	 



    	 		 



    

 


	 	1.4.	Appraisal.
    A current appraisal containing the value of the Property, prepared by an MAI appraiser licensed in the State of Minnesota
    (“Appraisal”), the amount of the Loan not to exceed 70% of the appraised value of the Property in the Appraisal.
    
	 	 	 
	 	1.5.	Flood
    Plain Determination. Evidence that the Property is not located in a flood plain that requires flood insurance.
	 	 	 
	 	1.6.	Financial
    Statements. Current financial statements of Borrower and Guarantors in a form and prepared in a manner reasonably acceptable
    to the Lender.
	 	 	 
	 	1.7.	Searches.
    Complete UCC, state and federal tax lien, bankruptcy and judgment searches on Borrower and Guarantors from such offices as
    the Lender may reasonably request which confirm that there are no interests which would be prior to the Lender’s interest.
    
	 	 	 
	 	1.8.	Zoning
    Letter. Letter or other written correspondence from the City of Monticello, a municipal corporation organized under the
    laws of the State of Minnesota (the “City”) confirming that the Property has been zoned appropriately.
	 	 	 
	 	1.9.	Documentation.
    The Loan Documents set forth in Section 3 herein.


 


2.
Loan Documents. The Borrower shall, on the date hereof, deliver to Lender the following, all of which shall be in form
and substance reasonably acceptable to the Lender, as evidence of Borrower’s obligation to repay the Loan and to pay interest
and other charges, fees and expenses thereon:


 


	 	2.1.	Loan
    Agreement. This Loan Agreement executed by the Borrower and Lender setting forth the terms and conditions of the Loan.
	 	 	 
	 	2.2.	Note.
    Promissory Note of even date herewith made by Borrower and payable to Lender in an amount of Three Million Seven Hundred Thousand
    and 00/100 Dollars ($3,700,000.00) (the “Note”);
	 	 	 
	 	2.3.	Mortgage.
    A Combination Mortgage, Security Agreement, Fixture Filing and Assignment of Leases and Rents (“Mortgage”)
    executed by the Borrower, as Mortgagor, in favor of the Lender, as Mortgagee, securing the indebtedness of the Note covering
    a fee simple interest in real property located at 213 Chelsea Road, Monticello, Minnesota and legally described on Exhibit
    A attached to the Mortgage (the “Property”);
	 	 	 
	 	2.4.	Guaranties.
    Guaranties (each, a “Guaranty” and collectively, the “Guaranties”) of Borrower’s
    obligations hereunder in favor of Lender executed and delivered by WSI Industries, Co., a Minnesota corporation and WSI Rochester,
    Inc., a Minnesota corporation (each, a “Guarantor” and collectively, the “Guarantors”),
    guarantying the Loan as more fully set forth in each Guaranty. 


 




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	 	2.5.	Indemnification
    Agreement. An Indemnification Agreement – Environmental/ADA executed by the Borrower and all Guarantors in favor
    of Lender indemnifying Lender for any environmental or ADA issues on the Property (the “Indemnification Agreement”);
	 	 	 
	 	2.6.	Certificate
    and Resolution of Borrower. A Certificate of Incumbency and Resolution executed by the Borrower with attached copies of
    the Borrower’s organizational documents and a resolution authorizing the borrowing of the Loan and execution and delivery
    of the Loan Document (the “Borrower Authority Documentation”). 
	 	 	 
	 	2.7.	Certificate
    and Resolution of Each Entity Guarantor. A Certificate of Incumbency and Resolution executed by each Guarantor that is
    an entity with attached copies of such Guarantor’s organizational documents and a resolution authorizing the guarantying
    of the Loan and execution and delivery of the Guaranty and Indemnification Agreement (the “Guarantor Authority Documentation”).
    
	 	 	 
	 	2.8.	Affidavit
    of Borrower. An Affidavit of Borrower executed by the Borrower certifying to the Lender that there are no tax liens, judgments
    against the Property or that there has been no labor or materials furnished to the Property within the last 120 days, or that
    there is no unrecorded documents or parties in possession except as set forth in the Permitted Encumbrances (as defined in
    the Mortgage). 


 


(The
foregoing shall be hereinafter referred as the “Loan Documents”).


 


	 	3.	Representations
    and Warranties. The Borrower represents and warrants that:
	 	 	 
	 	3.1.	Organization,
    Qualification and Authorization. Borrower is a corporation, validly existing and in good standing under the laws of the
    State of Minnesota; has the power and authority to own its property and to carry on its business as now being conducted; and
    is duly qualified and licensed to do business, and is in good standing, in every jurisdiction in which the nature of the business
    in which it is engaged makes such qualification or licensing necessary. 
	 	 	 
	 	3.2.	Organization,
    Qualification and Authorization. Each Guarantor is a corporation, validly existing and in good standing under the laws
    of the State of Minnesota; has the power and authority to own its property and to carry on its business as now being conducted;
    and is duly qualified and licensed to do business, and is in good standing, in every jurisdiction in which the nature of the
    business in which it is engaged makes such qualification or licensing necessary. 
	 	 	 
	 	3.3.	Validity
    of Obligations. Borrower has full power, right and authority to execute and deliver this Agreement, the Loan Documents
    and all other documents and agreements required to be delivered by it hereunder, to obtain the credit herein provided for,
    and to perform and observe each and all of the matters and things provided for in the Loan Documents. The execution and delivery
    of the Loan Documents and the performance or observance of the terms thereof has been duly authorized by all necessary company
    and member action and do not contravene or violate any provision of law or any provision of the Borrower’s organizational
    documents or any covenant, indenture or agreement of or binding upon Borrower nor require the consent or approval of any governmental
    entity or agency.


 




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	 	3.4.	Title
    to Assets. The Borrower has good and marketable title to all of its property and assets reflected in the latest financial
    statements delivered to the Lender, subject to the encumbrances as therein detailed, and subject to such restrictions, easements,
    encroachments and other encumbrances to which such assets are customarily subject or which have no material adverse effect
    on the value of the Property.
	 	 	 
	 	3.5.	Litigation.
    To its actual knowledge, no actions, suits or proceedings are pending or, to Borrower’s knowledge, threatened, against
    or affecting it before any court, governmental or administrative body or agency which might result in any material adverse
    change in the operations, business property, assets or condition (financial or otherwise) of Borrower, or which would question
    the validity of this Agreement or of any action taken or to be taken by the Borrower pursuant to or in connection with this
    Agreement.
	 	 	 
	 	3.6.	No
    Events of Default. No Event of Default as hereinafter defined has occurred and is continuing as of the date hereof and
    no event has occurred and is continuing which would be an Event of Default hereunder were it not for any grace period specified
    herein or which would become an Event of Default if notice thereof were given to Borrower.
	 	 	 
	 	3.7.	Use
    of Proceeds. The Borrower shall use the proceeds to refinance existing debt secured by the Property. 
	 	 	 
	 	3.8.	Financial
    Condition. The financial statements of the Borrower and Guarantors heretofore furnished to the Lender, are complete and
    correct in all material aspects and fairly present the financial condition of the Borrower and Guarantors, as of the date
    of such statements, and have been accurately prepared containing all relevant financial items. Since the most recent set of
    financial statements delivered by the Borrower and Guarantors to the Lender, there have been no material adverse changes in
    the financial condition of the Borrower or Guarantors.
	 	 	 
	 	3.9.	Licenses.
    The Borrower possesses adequate licenses, permits, franchises, patents, copyrights, trademarks and trade names, or rights
    thereto, to conduct its business substantially as now conducted and as presently proposed to be conducted with Borrower. 
	 	 	 
	 	3.10.	Taxes.
    The Borrower has filed all tax returns required to be filed and either paid all taxes shown thereon to be due, including interest
    and penalties, which are not being contested in good faith and by appropriate proceedings, or provided adequate reserves for
    payment thereof, and the Borrower has no information or knowledge of any objections to or claims for additional taxes in respect
    of federal income or excise profit tax returns for prior years.


 




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4.
Affirmative Covenants. The Borrower covenants and agrees with Lender that so long as any amount remains unpaid on the Note,
Borrower will:


 


	 	4.1.	Maintain
    Assets. Maintain and keep its assets, properties and equipment in good repair, working order and condition and from time
    to time make or cause to be made all needed renewals, replacements and repairs so that at all times Borrower’s business
    can be operated efficiently.
	 	 	 
	 	4.2.	Insurance.
    In accordance with Section 10 of the Mortgage, insure and keep insured all of its property of an insurable value (except sign
    structures, posters, or panels) under all risk policies in an amount reasonably acceptable to the Lender and carry such other
    property insurance as is usually carried by persons engaged in the same or similar business, all such insurance, to name the
    Lender as loss payee with a standard mortgage clause, and from time to time furnish to Lender upon request appropriate evidence
    of the carrying of such insurance, but not more often than twice in a calendar year.
	 	 	 
	 	4.3.	Financial
    Information. Furnish to the Lender:


 


(a)
Within ninety (90) days after the end of Borrower’s fiscal year, a set of consolidated audited financial statements for
such fiscal year for Borrower and Guarantors, including a balance sheet, statement of cash flow, profit and loss statement and
related statements prepared by a certified public accountant in accordance with normal and customary accounting procedures, all
in reasonable detail;


 


(b)
Within thirty (30) days after the end of each month, a set of internally prepared consolidated financial statements for Borrower
for the previous month, including a balance sheet, statement of cash flow, profit and loss statement and related statements in
accordance with normal and customary accounting procedures, all in reasonable detail;


 


(c)
Within forty-five (45) days after the end of each quarter, a set of consolidated financial statements for Borrower for the previous
quarter, including a balance sheet, statement of cash flow, profit and loss statement and related statements as such financial
statements are approved by the Board of Directors and in accordance with normal and customary accounting procedures, all in reasonable
detail;


 


(d)
Within twenty (20) days of the request of Lender, Borrower shall provide to Lender an accounts receivable aging and inventory
listing, both in form and content reasonably acceptable to Lender; and


 


(e)
Such other information as the Lender may reasonably request from time to time.


 


	 	4.4.	Access
    to Records. Permit any person designated by Lender, at Lender’s expense upon at least twenty-four (24) hour reasonable
    prior notice, to visit and inspect any of its properties, corporate books and financial records and to discuss its affairs,
    finances and accounts with the principal officers of Borrower, all at such reasonable times and as often as Lender may reasonably
    request.


 




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	 	4.5.	Taxes,
    Assessments and Charges. Promptly pay over to the appropriate authorities all sums for taxes deducted and withheld from
    wages as well as the employer’s contributions and other governmental charges imposed upon or asserted against Borrower’s
    income, profits, properties and rental charges or otherwise which are or might become a lien charged upon Borrower’s
    properties, unless the same are being contested in good faith by appropriate proceedings and adequate reserves shall have
    been established on Borrower’s books with respect thereto.
	 	 	 
	 	4.6.	Notification
    of Changes. Promptly notify the Lender of:


 


(a)
Any litigation which might materially and adversely affect Borrower;


 


(b)
The occurrence of any Event of Default under this Agreement or any event of which Borrower has knowledge and which, with the passage
of time or giving of notice or both, would constitute an Event of Default under this Agreement; or


 


(c)
Any material adverse change in the operations, business, properties, assets or conditions, financial or otherwise, of the Borrower.


 


	 	4.7.	Company
    Existence. The Borrower shall maintain its corporate existence in compliance with all applicable statutes, laws, rules
    and regulations.
	 	 	 
	 	4.8.	Books
    and Records. Keep true and accurate books, records and accounts in accordance with sound accounting and bookkeeping practices.
	 	 	 
	 	4.9.	Reimbursement
    of Expenses. Promptly reimburse Lender for any and all reasonable out-of-pocket expenses, and all fees and disbursements,
    including actual and reasonable attorneys’ fees incurred and paid for by Lender, incurred in connection with the preparation
    and performance of this Agreement and the instruments and documents related thereto, and all expenses of collection of the
    Loan to be made hereunder, including actual and reasonable attorneys’ fees incurred and paid for by Lender.
	 	 	 
	 	4.10.	Environmental
    Compliance. Comply with all its obligations and undertakings in the Indemnification Agreement.
	 	 	 
	 	4.11.	Working
    Capital. At all times while the Loan is outstanding, Borrower shall maintain minimum Working Capital of no less than $4,500,000.00.
    “Working Capital” shall be defined as current assets (to include cash, accounts, receivables and inventory)
    minus current liabilities. The Working Capital covenant shall be tested monthly commencing on March 31, 2017 and tested monthly
    thereafter. 


 




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	 	4.12.	Tangible
    Net Worth. At all times while the Loan is outstanding, Borrower shall maintain a minimum Tangible Net Worth of no less
    than $9,000,000.00. “Tangible Net Worth” shall be defined as net worth less intangible assets and goodwill.
    The Tangible Net Worth shall be tested monthly commencing on March 31, 2017 and tested monthly thereafter. 
	 	 	 
	 	4.13.	Compliance
    Certificate. Within thirty (30) days after the end of each month while the Loan is outstanding, Borrower shall complete
    and submit a Compliance Certificate in the form attached as Exhibit A, certifying the information contained
    thereof is true and correct. 


 


5.
Negative Covenants. The Borrower hereby covenants and agrees with the Lender that so long as any amount shall remain unpaid
on the Note, or so long as Lender has any obligation to make advances hereunder, Borrower will not:


 


	 	5.1.	Merge,
    Consolidate or Sell. Merge or consolidate with or into another entity, or lease, or sell all or substantially all of its
    property and business to any other entity or entities. 
	 	 	 
	 	5.2.	Default
    on Other Obligations. Default upon or fail to pay, beyond any applicable periods of grace, any of its other debts or obligations
    as the same mature, unless the same are being contested in good faith by appropriate proceedings and adequate reserves shall
    have been established on Borrower’s books with respect thereto.
	 	 	 
	 	5.3.	Material
    Adverse Change. While the Loan is outstanding, Borrower shall not have a material adverse change in its operations, business,
    properties, assets or financial condition, which would materially impair to the risk of repayment of the Note. 


 


	 	6.	Defaults.
	 	 	 
	 	6.1.	Event
    of Default. Any one or more of the following events shall constitute an Event of Default:


 


(a)
Payment. Borrower shall fail to pay, within ten (10) days of when due, any payments due under the Note; or


 


(b)
Other Payments. Borrower shall fail to pay any amounts other than those set forth in Section 6.1(a) herein required by
the Borrower under the Loan Documents within ten (10) days of when due; or


 


(c)
Other Covenants or Agreements Herein. Borrower shall default in any material respect in the due performance or observance
of any term, covenant or agreement contained in this Agreement or any of the other Loan Documents (other than payments under the
Note) and such default shall continue for a period of thirty (30) days after written notice thereof shall have been given by Lender
to Borrower or if such default does not consist of the non-payment of money and cannot reasonably be cured within thirty (30)
days, for such longer period of time not exceeding sixty (60) days as may be necessary to cure such default with the exercise
of due diligence so long as Borrower is diligently proceeding to cure such default; or


 




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(d)
Default In Favor of Third Parties. Borrower defaults under any loan, extension of credit, security agreement, purchase
or sales agreement, or any other agreement, in favor of any other creditor or person that may reasonably be expected to materially
affect any of the Property or Borrower’s ability to repay the Note or perform Borrower’s obligations under any of
the Loan Documents and such default is not cured within thirty (30) days; or


 


(e)
Insolvency. Borrower or Guarantors shall: (i) become insolvent; (ii) suspend business; (iii) make a general assignment
for the benefit of its or their creditors; (iv) admit in writing its, his or their inability to pay its, his or their debts generally
as they mature; (v) file a petition in bankruptcy or a petition or answer seeking a reorganization, arrangement with creditors
or other similar relief under the Federal bankruptcy laws or under any other applicable law of the United States of America or
any State thereof; (vi) consent to the appointment of a trustee or receiver for Borrower or Guarantors or for a substantial part
of its, his or their property; (vii) be adjudicated a bankrupt or fail to cause an involuntary petition in bankruptcy to be dismissed
within sixty (60) days after the filing thereof; (viii) take any action for the purpose of effecting or consenting to any of the
foregoing; or (ix) have an order, judgment or decree entered appointing a trustee, conservator or receiver for Borrower or Guarantors
or for a substantial part of its property, or approving a petition filed against Borrower or Guarantors seeking a reorganization,
arrangement with creditors or other similar relief under the Federal bankruptcy laws or under any other applicable law of the
United States of America or any State hereof, which order, judgment or decree shall not be vacated or set aside or stayed within
sixty (60) days from the date of entry; or


 


(f)
Representations and Warranties. If any material representation or warranty contained in this Agreement or any of the other
Loan Documents or any letter or certificate furnished or to be furnished to the Lender by the Borrower pursuant to this Agreement
proves to be false in any material respect as of the date executed or delivered to Lender; or


 


(g)
Judgments. Judgments against Borrower for the payment of money totaling in excess of $50,000.00 shall be outstanding for
a period of thirty (30) days without a stay of execution; or


 


(h)
Material Adverse Change. Any Material Adverse Change shall occur in the condition (financial or otherwise) of the Borrower
or any Guarantor which, in the reasonable opinion of the Lender, materially increases its risk with respect to the Note; or


 




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(i)
Other Agreements. Borrower defaults under the terms and conditions of any other agreements with or indebtedness to the
Lender which default is not cured within any applicable cure period, or if no cure period is provided and such default does not
consist of non-payment of money, such default is not cured within thirty (30) days of receipt of written notice from Lender of
such default, except no notice shall be provided for a default under Section 6.1(a) or 6.1(b) herein.


 


	 	6.2.	Lender’s
    Right on Default. Upon the occurrence of an Event of Default, Lender may, at its option and without notice: (a) refuse
    to advance against the Note; (b) accelerate amounts outstanding on the Note and demand their immediate payment in full without
    presentment or other demand, protest, notice of dishonor or any other notice of any kind, all of which are expressly waived;
    (c) foreclose its lien on the Property pursuant to the Mortgage; (d) seek appointment of a receiver; and (e) take such other
    actions as may otherwise be available in equity or at law. All remedies of the Lender shall be cumulative.
	 	 	 
	 	7.	Miscellaneous.
	 	 	 
	 	7.1.	Binding
    Effect. The parties hereto agree that this Agreement shall be binding upon and inure to the benefit of their respective
    successors in interest and assigns including any holder of the Note, provided, however, that Borrower may not assign or transfer
    its interest hereunder without the prior written consent of the Lender.
	 	 	 
	 	7.2.	Governing
    Law. This Agreement and the rights and obligations of the parties hereunder and under the Note, as applicable, and any
    other Loan Documents, shall be construed in accordance with and governed by the laws of the State of Minnesota. Borrower hereby
    consents to the jurisdiction of the courts of the State of Minnesota for any actions brought hereon or on the Note, as applicable.
	 	 	 
	 	7.3.	Notices.
    Any notices required or contemplated hereunder shall be effective upon two (2) business days after placing thereof in the
    United States mail, certified mail and with return receipt requested, postage prepaid, and addressed as follows:


 


	 	If
    to Borrower:	WSI
    Industries, Inc.
	 	 	213
    Chelsea Road
	 	 	Monticello,
    MN 55362
	 	 	Attn:
    Paul Sheely
	 	 	 
	 	If
    to Lender:	Tradition
    Capital Bank 
	 	 	7601
    France Avenue South, Suite 140
	 	 	Edina,
    MN 55435
	 	 	Attn:
    Natalia Armitage 


 




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	 	With
    a copy to:	Messerli
    & Kramer P.A.
	 	 	1400
    Fifth Street Towers
	 	 	100
    South Fifth Street
	 	 	Minneapolis,
    Minnesota 55402
	 	 	Attn:
    Michelle R. Jester, Esq.


 


	 	7.4.	Offset.
    Borrower hereby grants to Lender a security interest in all accounts of Borrower with the Lender. Upon the occurrence of an
    Event of Default, Lender is authorized at any time and from time to time without notice to Borrower or to any other person,
    any such notice being hereby expressly waived, to set off any and all deposits, and any other indebtedness at any time held
    or owing by Lender, to or for the credit or the account of Borrower, against the obligations and liabilities of Borrower to
    Lender under this Agreement and the Note, as applicable.
	 	 	 
	 	7.5.	No
    Waivers. No failure or delay on the part of Lender in exercising any right, power or privilege hereunder and no course
    of dealing between Borrower and Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any
    right, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power
    or privilege.
	 	 	 
	 	7.6.	Counterpart
    Signatures. This Agreement may be executed in any number of counterparts and by different parties hereto on separate counterparts,
    each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts,
    taken together, shall constitute one and the same Agreement.
	 	 	 
	 	7.7.	Headings.
    The headings of various sections of this Agreement have been inserted for reference only and shall not be deemed to be a part
    of this Agreement.
	 	 	 
	 	7.8.	Amendment
    and Waiver. Neither this Agreement nor any provision hereof may be modified, waived, discharged or terminated orally,
    but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination
    is sought.
	 	 	 
	 	7.9.	OFAC
    Lists. Borrower represents and warrants to Lender that: (i) no Related Entity is (and to Borrower’s knowledge after
    diligent inquiry, no other person holding any legal or beneficial interest whatsoever in Borrower, directly or indirectly,
    is) included in, owned by, controlled by, acting for or on behalf of, providing assistance, support, sponsorship, or services
    of any kind to, or otherwise associated with any of the persons referred to or described in any list of persons, entities,
    and governments issued by the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”)
    pursuant to Executive Order 13224 – Blocking Property and prohibiting Transactions with Persons Who Commit, Threaten
    to Commit, or Support Terrorism, as amended (“Executive Order 13224”), or any similar list issued by OFAC
    or any other department or agency of the United States of America (collectively, the “OFAC Lists”); and
    (ii) none of the Related Entities are controlled by, acting for or on behalf of, providing assistance, support, sponsorship,
    or services of any kind to, or otherwise associated with any of the persons referred to or described in any list of persons,
    entities, and governments issued by OFAC pursuant to Executive Order 13224, or any other OFAC Lists. “Related Entity”
    shall mean Borrower, Assignors, Guarantors, or any member of Borrower, Assignors or Guarantors and any other affiliate of
    Borrower, Assignors and Guarantors which directly or indirectly owns any legal or beneficial interest in Borrower.


 




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	 	7.10.	Compliance
    with Anti-Terrorism Regulations.


 


(a)
Borrower hereby covenants and agrees that: (i) no Related Entity will be included in, owned by, controlled by, act for or on behalf
of, provide assistance, support, sponsorship, or services of any kind to, or otherwise associated with any of the persons referred
to or described in any list of persons, entities, and governments issued by OFAC pursuant to Executive Order 13224 or any other
OFAC Lists; and (ii) none of the Related Entities will be controlled by, act for or on behalf of, provide assistance, support,
sponsorship, or services of any kind to, or otherwise associate with any of the persons referred to or described in any list of
persons, entities, and governments issued by OFAC pursuant to Executive Order 13224, or any other OFAC lists.


 


(b)
Borrower hereby covenants and agrees that it will comply at all times with the requirements of Executive Order 13224; the International
Emergency Economic Powers Act, 50 U.S.C. Section 1701-06; the United and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. 107-56; the Iraqi Sanctions Act, Pub. L. 101-513, 104 Stat.
2047-55; the United Nations Participation Act, 22 U.S. C. Section 287c; the Antiterrorism and Effective Death Penalty Act, (enacting
8 U.S.C. Section 219, 18 U.S.C. Section 2332d, and 18 U.S.C. Section 2339b); the International Security and Development Cooperation
Act, 22 U.S.C. Section 2349 aa-9; the Terrorism Sanctions Regulations, 31 C.F.R. Part 595; the Terrorism List Government Sanctions
Regulations, 31 C.F.R. Part 596; and the Foreign Terrorist Organizations Sanctions Regulations, 31 C.F.R. Part 597 and any similar
laws or regulation currently in force or hereafter enacted (collectively, the “Anti-Terrorism Regulations”).


 


(c)
Borrower herby covenants and agrees that if it becomes aware or receives any notice that any Related Entity is named on any of
the OFAC Lists (such occurrence, an “OFAC Violation”), Borrower will immediately: (i) give notice to Lender
of such OFAC Violation; and (ii) comply with all laws applicable to such OFAC Violation (regardless of whether the party included
on any of the OFAC Lists is located within the jurisdiction of the United States of America), including without limitation, the
Anti-Terrorism Regulations, and Borrower hereby authorizes and consents to Lender’s taking any and all steps Lender deems
necessary, in its sole discretion, to comply with all Laws applicable to any such OFAC Violation, including, without limitation,
the requirements of the Anti-Terrorism Regulations (including the “freezing” and/or “blocking” of assets).


 




    	 	 -11-	 



    	 		 



    

 


(d)
Upon Lender’s request from time to time during the term of the Loan, Borrower agrees to deliver a certification confirming
that the representations and warranties set forth in Section 7.9 above remain true and correct as of the date of such certificate
and confirming Borrower’s compliance with this Section 7.10.


 


	 	7.11.	Fees.
    Borrower agrees to pay to Lender an initial non-refundable loan origination fee of $9,250.00 on the date hereof (the “Origination
    Fee”). Borrower agrees also to pay to Lender upon demand all reasonable out-of-pocket costs incurred by Lender in
    connection with the Loan transaction contemplated hereby, including all actual and reasonable attorney fees incurred and paid
    for by Lender in connection with this Loan Agreement or the transactions contemplated hereby, appraisal fees, Title Company
    fees and other customary charges. If Borrower does not comply with the terms and conditions of this Loan Agreement, the loan
    or service fees shall not be refunded but shall be considered fully earned by Lender notwithstanding the cancellation of this
    Loan Agreement, and Borrower shall remain liable to pay and shall pay to Lender the attorney fees referred to in this Section.
	 	 	 
	 	7.12.	Account
    Relationship. Borrower acknowledges that it shall maintain its primary deposit account, including its operating account,
    with the Lender. The monthly payment due under the Note shall be automatically deducted each month out of the operating account
    held by the Borrower at the Lender. Borrower shall be responsible to ensure sufficient amounts exist in the deposit account
    for the monthly payment amount to be under the Note and that a failure to keep sufficient funds in the deposit account shall
    not alleviate Borrower’s obligation to timely make payments under the Note.
	 	 	 
	 	7.13.	Participations.
    Lender shall have the right to grant participations in the Loan to one or more other lending institutions, and such participants
    shall be entitled to the benefits of this Agreement, to the same extent as if they were a direct party hereto; provided, however,
    that no such participation by any such participant shall in any way affect the obligation of the Lender under the Loan; and
    provided further that no such participant shall be entitled to receive payment hereunder of any amount greater than the amount
    which would have been payable had the Lender not granted a participation to such participant.


 


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    	 	 -12-	 



    	 		 



    

 


Executed
in Minneapolis, Minnesota, as of the year and day first above written.


 


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


 


	 	LENDER:
	 	 
	 	TRADITION
    CAPITAL BANK, 
	 	a
    Minnesota banking corporation
	 	 	 
	 	By:	/s/
    Natalia Armitage
	 		Natalia
    Armitage 
	 	Its:	Senior
    Vice President


 




    	 	 	 



    	 		 



    

 


EXHIBIT
A


 


COMPLIANCE
CERTIFICATE


 


See
attached.


 




    	 	 	 



    	 		 



    

 


COMPLIANCE
CERTIFICATE


 





	TO:	Tradition
    Capital Bank, a Minnesota banking corporation (“Lender”).







 


Pursuant
to that certain Loan Agreement dated February 15, 2017, by and between the WSI INDUSTRIES, INC., a Minnesota corporation (“Borrower”)
and Lender, and any amendments thereto and extensions thereof (“Loan Agreement”), the undersigned hereby:


 


	A.	Repeats
    and reaffirms to the Lender each and all of the representations and warranties made by the Borrower in the Loan Agreement
    and the agreements referred to therein or related thereto, and certifies to the Lender that each and all of said warranties
    and representations are true and correct as of the date hereof, except as they relate to an earlier date. Unless otherwise
    defined herein, all terms used herein which are defined in the Loan Agreement shall have the same meanings herein as in the
    Loan Agreement.
	 	 
	B.	Represents,
    warrants and certifies to the Lender that the Borrower has achieved the required dollar amount set forth below for each of
    the covenants as defined in Sections 4.11 and 4.12 of the Loan Agreement as of the date of this Compliance Certificate. 


 


	Covenants	 	Required	 	 	Actual	 
	Minimum Tangible Net Worth	 	$	9,000,000.00	 	 	$	-	 
	Minimum Working Capital	 	$	4,500,000.00	 	 	$	-	 



 


	C.	Represents,
    warrants and certifies that no Event of Default is existing at the date of this Compliance Certificate, and to the best of
    the knowledge and belief of the officer of the undersigned executing this Compliance Certificate, there has not been (except
    as may be otherwise indicated below) any change since the computation date specified above which would materially change any
    of the amounts shown above as such amounts were computed as of the date of this Compliance Certificate:
	 	 


 


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