Document:

PROMISSORY
NOTE

 

	$3,700,000.00	Edina,
    Minnesota
	 	February
    15, 2017

 

FOR
VALUE RECEIVED, the undersigned, WSI INDUSTRIES, INC., a Minnesota corporation (hereinafter designated as “Borrower”),
promises to pay to the order of TRADITION CAPITAL BANK, a Minnesota banking corporation (hereinafter referred to as “Lender”),
(Lender and any holder of this Note from time to time are each hereinafter sometimes referred to as “Holder”),
at 7601 France Avenue South, Suite 140, Edina, Minnesota 55435, or such other place as may hereinafter be designated from time
to time in writing by the Holder hereof, the principal sum of Three Million Seven Hundred Thousand and 00/100 Dollars ($3,700,000.00)
(hereinafter referred to as the “Loan Amount”), or so much thereof as shall have been advanced hereunder to
or for the benefit of the undersigned pursuant to the terms of a Loan Agreement of even date herewith made by the Borrower and
Lender (hereinafter referred to as the “Loan Agreement”), together with interest from the date hereof until
fully paid, at the rates hereinafter provided, on the Loan Amount, from time to time, advanced and remaining unpaid (hereinafter
referred to as the “Principal Balance”). The Principal Balance and interest shall be due and payable as follows:

 

A.
Commencing on the date hereof and continuing through the fifth (5th) annual anniversary date hereof (the “Change
Date”), interest shall accrue on the Principal Balance at a fixed rate of three and ninety-nine one hundredths percent
(3.99%), and then on the Change Date through the Maturity Date (defined below), the Interest Rate shall be reset and fixed at
two percent (2.0%) over the Federal Home Loan Bank of Des Moines Five Year Fixed Advanced Rate (the “FHLBDM Rate”)
(such rate as is in effect during the terms hereof is hereafter referred to as the “Interest Rate”). If the
FHLBDM Rate is no longer available, the Lender shall reasonably select a new index which is based upon comparable information
as the index and shall so notify Borrower. The annual Interest Rate for the Note is computed on a 365/360 basis; that is, by applying
the ratio of the annual 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.

 

B.
Borrower shall pay monthly installments of principal and interest with the Loan Amount amortized over twenty (20) years after
applying the Interest Rate, such monthly payment in the amount of $22,511.23, commencing on March 15, 2017, and continuing on
the same day of each successive month thereafter until February 15, 2027 (the “Maturity Date”). On the Change
Date, the monthly principal and interest payments shall be recalculated based on the change in the Interest Rate with the Loan
Amount continuing to be amortized over twenty (20) years with such new monthly payments commencing on March 15, 2022 and continuing
on the same day of each successive month thereafter until the Maturity Date. On the Maturity Date, the entire Principal Balance
and all accrued and unpaid interest, late fees and any other amounts shall be paid in full. The Payment then due is a balloon
payment.

 

    	 	 	 

    	 	 	 

    

 

If
any scheduled installment of principal or interest, including but not limited to the balloon payment, due on the Note is not paid
within ten (10) days of the due date thereof, the Borrower shall pay to the Lender a late charge equal to five percent (5.0%)
of the amount of such late installment, including any balloon payment.

 

All
payments and prepayments shall, at the option of the Lender, be applied first to any costs of collection, second to any late charges,
third to accrued interest due on the Note, and lastly to principal (with respect to prepayment to installments of principal, they
shall be applied in inverse order of their maturity on the Note). If Borrower prepays in excess of ten percent (10%) of the Principal
Balance outside of the normal monthly payments, Borrower shall pay to Lender a prepayment penalty calculated as a specified percentage
of the Principal Balance prepaid in any given year based upon the following:

 

	Year 1	 	 	Year 2	 	 	Year 3	 	 	Year 4	 	 	Year 5	 	 	Year 6	 	 	Year 7	 	 	Year 8	 	 	Year 9	 	 	Year 10	 
	 	3.0	%	 	 	3.0	%	 	 	2.0	%	 	 	1.0	%	 	 	1.0	%	 	 	3.0	%	 	 	3.0	%	 	 	2.0	%	 	 	1.0	%	 	 	1.0	%

 

This
Note is secured by, inter alia, a Combination Mortgage, Security Agreement, Fixture Filing and Assignment of Leases
and Rents executed by Borrower in favor of Lender of even date herewith against certain real property located at 213 Chelsea Road,
Monticello, Minnesota (the “Mortgage”), and pursuant to the terms and conditions contained in the Loan Agreement,
which are to be kept and performed by Borrower are hereby made a part of this Note, and to the same extent and with the same force
and effect as if they were fully set forth herein. The Borrower covenants and agrees to keep and perform them, or cause them to
be kept and performed, strictly in accordance with their terms.

 

Time
is of the essence hereof. During the continuance of an Event of Default, beyond any applicable cure period, as defined in the
Loan Agreement, including failure to pay the balloon payment, Lender, at its option, may also, if permitted under applicable law,
increase the Interest Rate of the Note by five percent (5.0%), except as expressly stated otherwise in the Loan Agreement. In
the event of a default in the payment of any principal or interest due hereunder or in the payment or performance of anything
by Borrower to be paid or performed under any of the terms and conditions in this Note or in the Loan Documents continuing beyond
any applicable cure periods, the Holder at its option and without further notice, demand or presentment for payment to Borrower
or others, may declare immediately due and payable the Principal Balance and interest accrued thereon, together with any reasonable
attorneys’ fees incurred by Holder in collecting or enforcing payment thereof, whether suit be brought or not, and all other
sums due by Borrower hereunder or under the Loan Documents, anything herein or in Loan Documents to the contrary notwithstanding,
and payment thereof may be enforced and recovered in whole in or in part at any time by one or more of the remedies provided to
Holder in this Note or in the Loan Documents.

 

The
remedies of Holder as provided herein and in the Loan Documents shall be cumulative and concurrent and may be pursued singly,
successively or together, at the sole discretion of Holder, and may be exercised as often as occasion therefor shall occur; and
the failure to exercise any such right or remedy shall in no event be construed as a waiver or release thereof.

 

    	 	 	 

    	 	 	 

    

 

Borrower
waives presentment for payment, demand, notice of demand, notice of nonpayment or dishonor, protest and notice of protest of this
Note, and all other notices in connection with the delivery, acceptance, performance, default or enforcement of the payment of
this Note.

 

Holder
shall not be deemed by any act of omission or commission to have waived any of its rights or remedies hereunder unless such waiver
is in writing and signed by the Holder, and then only to the extent specifically set forth in the writing. A waiver with reference
to one event shall not be construed as continuing or as a bar to or waiver of any right or remedy as to a subsequent event.

 

All
agreements herein are expressly limited so that in no contingency or event whatsoever shall the amount paid or agreed to be paid
to the Holder for the use, forbearance or detention of the money to be advanced hereunder exceed the highest lawful rate permissible
under applicable usury laws. If from any circumstances whatsoever fulfillment of any provision hereof at the time performance
of such provisions shall be due shall involve transcending the limit of validity prescribed by law which a court of competent
jurisdiction may deem applicable hereto, then the obligation to be fulfilled shall be reduced to the limit of such validity and
if from any circumstance the Holder shall ever receive as interest an amount which would exceed the highest lawful rate, such
amount which would be excessive interest shall be applied to the reduction of the unpaid principal balance due hereunder and not
to the payment of interest.

 

This
instrument shall be governed by and construed according to the laws of the State of Minnesota.

 

[Remainder
of this page is intentionally left blank; signature page follows]

 

    	 	 	 

    	 	 	 

    

 

IN
WITNESS WHEREOF, Borrower, intending to be legally bound hereby, has duly executed this Note the day and year first above written.

 

	 	BORROWER:
	 	 
	 	WSI INDUSTRIES, INC., 
	 	a Minnesota corporation 
	 	 	 
	 	By:	/s/
    Paul D. Sheely
	 		Paul
    D. Sheely 
	 	Its:	Chief
    Financial OfficerPrepared
by, and after recording return to:

Michelle
R. Jester, Esq.

Messerli
& Kramer P.A.

1400
Fifth Street Towers

100
South Fifth Street

Minneapolis,
MN 55402

 

 

COMBINATION
MORTGAGE, SECURITY AGREEMENT, 

FIXTURE
FILING AND ASSIGNMENT OF LEASES AND RENTS

 

WSI
INDUSTRIES, INC.,

Mortgagor,

 

having
an office at

213
Chelsea Road

Monticello,
MN 55362

 

to

 

TRADITION
CAPITAL BANK,

Mortgagee,

 

having
an office at

7601
France Avenue South, Suite 140

Edina,
Minnesota 55435

 

    	 

    	 

    

 

COMBINATION
MORTGAGE, SECURITY AGREEMENT, FIXTURE FILING AND ASSIGNMENT OF LEASES AND RENTS

 

THIS
DOCUMENT SERVES AS A FIXTURE FILING UNDER THE

UNIFORM
COMMERCIAL CODE OF MINNESOTA.

 

This
Combination Mortgage, Security Agreement, Fixture Filing and Assignment of Leases and Rents (“Mortgage”) is
made this 15th day of February, 2017, by WSI INDUSTRIES, INC., a Minnesota corporation (the “Mortgagor”), with
offices at 213 Chelsea Road, Monticello, Minnesota 55362, for the benefit of TRADITION CAPITAL BANK, a Minnesota banking corporation,
with offices located at 7601 France Avenue South, Suite 140, Edina, Minnesota 55435 (the “Mortgagee”).

 

Definitions

 

For
the purpose of this Mortgage, the following terms shall have the following meanings:

 

Chattels
- “Chattels” means all fixtures, fittings, appliances, apparatus, equipment, personal property, rents, leases
and profits, and other property in which Mortgagor at any time may own an interest, for location upon and use in the
operation of the “Mortgaged Property” (as defined herein), which may be affixed to, attached to, placed upon, or
used in any way in connection with the complete and comfortable use, enjoyment or occupancy of the Mortgaged Property, but
does not include trade fixtures which are the personal property of any tenant or which may be removed by a tenant or occupant
under the terms of an existing lease.

 

Improvements
- “Improvements” means the buildings, fixtures, improvements, other materials incorporated into the buildings on
the Mortgaged Property, and all other property which is or will become the property of the Mortgagor under any lease or
other agreement with any tenant or occupant of any buildings, or any third party located on the Mortgaged
Property.

 

Note
- “Note” means the Promissory Note of the Mortgagor in the original principal amount of Three Million Seven
Hundred Thousand and No/100 Dollars ($3,700,000.00) of even date herewith, to and in favor of Mortgagee.

 

All
terms used in this Mortgage not specifically defined in the definition section hereof shall have the meaning set forth in this
Mortgage.

 

Recitals

 

WHEREAS,
Mortgagor is the owner of certain real property commonly known as 213 Chelsea Road, City of Monticello, County of Wright, State
of Minnesota, as legally described on Exhibit A attached hereto and made a part hereof, together with all existing and
future easements and rights affording access to it (the “Land”); and

 

    	2

    	 

    

 

WHEREAS,
the Mortgagor is justly indebted to the Mortgagee in the principal sum of Three Million Seven Hundred Thousand and No/100 Dollars
($3,700,000.00) pursuant to the Note with interest thereon at the rates as set forth therein, which shall be due and payable on
February 15, 2027 (the “Maturity Date”).

 

NOW,
THEREFORE, THIS MORTGAGE FURTHER WITNESSETH, that in consideration of the aggregate principal sum of Three Million Seven Hundred
Thousand and No/100 Dollars ($3,700,000.00) to be advanced pursuant to the Note, and for the purpose of securing (a) the Note
and all renewals, extensions and modifications thereof and any Note issued in substitution therefor, and all the sums payable
in accordance with the Note; (b) the payment of all other sums with interest thereon as may be advanced by the Mortgagee in accordance
with this Mortgage (the sums, obligations and liabilities described in these clauses (a) and (b) are hereinafter collectively
referred to as the “Indebtedness”); and (c) the performance of all the covenants and agreements of the Mortgagor
contained in all other documents securing or executed in connection with the Note, the Mortgagor does hereby mortgage, grant,
bargain, sell, assign, transfer, grant a security interest in and convey unto the Mortgagee forever the Land together with (i)
all the buildings, structures and other Improvements now standing or at any time hereafter constructed or placed upon the Land;
and (ii) all lighting, heating, ventilating, air conditioning, sprinkling and plumbing fixtures, water and power systems, engines
and machinery, boilers, furnaces, oil burners, elevators and motors, communication systems, dynamos, transformers, electrical
equipment and all other fixtures of every description located in or on, or used, or intended to be used in connection with the
Land or any building now or hereafter located thereon; and (iii) all hereditaments, easements, appurtenances, riparian rights,
rents, issues, profits, condemnation awards, mineral rights and water rights now or hereafter belonging or in any way pertaining
to the Land or to any building now or hereafter located thereon and all the estates, rights and interests of the Mortgagor in
the Land; (iv) the Improvements; (v) the Chattels; (vi) all additions, accessions, parts, betterments, and repairs now or hereafter
attached or affixed to or used in connection with any of the foregoing; and (vii) all proceeds of any of the foregoing (all the
foregoing, together with the Land, are hereinafter collectively referred to as the “Mortgaged Property.”)

 

To
Have and To Hold the Mortgaged Property unto the Mortgagee forever; provided, nevertheless, that this Mortgage is upon the express
condition that if the Mortgagor shall pay to the Mortgagee as and when due and payable, all Indebtedness, and shall also keep
and perform each and every covenant and agreement of Mortgagor herein contained, then, this Mortgage and the estate hereby granted
shall cease and be and become void and shall be released of record at the expense of the Mortgagor; otherwise this Mortgage shall
be and remain in full force and effect.

 

The
Mortgagor represents, warrants, and covenants to and with the Mortgagee that it is lawfully seized of the Land in fee simple;
that it has authority to execute this Mortgage and to mortgage the Mortgaged Property; that the Mortgaged Property is free from
all liens, security interests, and encumbrances except as listed in Exhibit B attached hereto (“Permitted Encumbrances”)
or otherwise permitted herein; that the Mortgagor will warrant and defend the title to the Mortgaged Property and the lien and
priority of this Mortgage against all claims and demands of all persons whomsoever, whether now existing or hereafter arising,
not listed in Exhibit B; and that all buildings and Improvements now or hereafter located on the Land are, or will be located
entirely within the boundaries of the Land. The covenants and warranties of this paragraph shall survive foreclosure of this Mortgage
and shall run with the Land.

 

    	3

    	 

    

 

The
Mortgagor further covenants and agrees as follows:

 

Section
1. Payment of the Indebtedness. The Mortgagor will duly and punctually pay all Indebtedness when and as due and payable
and will punctually perform and observe all its obligations and covenants under the Note and other documents executed in connection
therewith, in accordance with the terms thereof.

 

Section
2. Additions Subject to Lien of Mortgage. All right, title and interest of the Mortgagor in and to all extensions, Improvements,
betterments, renewals, substitutes and replacements of, and all additions and appurtenances to, the Mortgaged Property, hereafter
acquired by, or released to, the Mortgagor or constructed, assembled or placed by the Mortgagor on the Mortgaged Property, and
all conversions of the security constituted thereby, immediately upon such acquisition, release, construction, assembling, placement
or conversion, as the case may be, and in each such case, without any further mortgage, conveyance, assignment or other act by
the Mortgagor, shall become subject to the lien of this Mortgage as fully and completely, and with the same effect, as though
now owned by the Mortgagor and specifically described in the granting clause hereof, but at any and all times the Mortgagor will
execute and deliver to the Mortgagee any and all such further assurances, mortgages, conveyances or assignments thereof as the
Mortgagee may reasonably require for the purpose of expressly and specifically subjecting the same to the lien of this Mortgage.

 

Section
3. Fund for Taxes and Assessments.

 

	A.	Upon
    Event of Default, Mortgagee may require Mortgagor to pay to Mortgagee, in addition to any monthly principal and interest installments
    due pursuant to the Note, a sum equal to one-twelfth of the yearly taxes and assessments levied against the Mortgaged Property
    as estimated from time to time by the Mortgagee, to be applied by the Mortgagee to pay said taxes and assessments (such amounts
    being hereafter referred to as the “Escrow Funds”). The Mortgagee shall apply the Escrow Funds to pay said
    taxes and assessments on or before the dates the same are due so long as the amount of Escrow Funds held by the Mortgagee
    is sufficient at that time to make such payments. No earnings or interest shall be payable to the Mortgagor on the Escrow
    Funds. Such Escrow Funds shall not be, nor be deemed to be, trust funds, and the Mortgagee shall have the right to hold the
    Escrow Funds in any manner the Mortgagee elects and may commingle the Escrow Funds with other moneys held by the Mortgagee.
	 	 
	B.	If
    the amount of the Escrow Funds held by the Mortgagee shall exceed at any time the amount deemed necessary by the Mortgagee
    to provide for the payment of taxes and assessments, such excess shall, at the option of the Mortgagee, either be repaid to
    the Mortgagor or be credited to the Mortgagor on the next monthly installment of Escrow Funds due. If at any time the amount
    of the Escrow Funds held by the Mortgagee shall be less than the amount deemed necessary by Mortgagee to pay taxes and assessments
    as they fall due, the Mortgagor shall promptly pay to the Mortgagee any amount necessary to make up the deficiency upon notice
    from the Mortgagee to the Mortgagor requesting payment thereof. The Escrow Funds are pledged as additional security for the
    Indebtedness.

 

    	4

    	 

    

 

Section
4. Application of Payments Inconsistent With Loan Agreement and Note. All payments received by the Mortgagee from the Mortgagor
shall be applied by Mortgagee first to any costs of collection, second to any late charges, third to accrued interest due on the
Note, and lastly to principal (with respect to prepayment of installments of principal, they shall be applied to inverse order
of their maturity on the Note).

 

Section
5. Payment of Impositions. Except as provided in Section 3, the Mortgagor will pay when due and before any penalty attaches
all taxes, installments of assessments, water charges, sewer charges and other fees, taxes, charges and assessments of every kind
and nature whatsoever assessed or charged against or constituting a lien on the Mortgaged Property or any interest therein or
the Indebtedness (hereinafter referred to as the “Impositions”) and will upon demand furnish to the Mortgagee
proof of payment of any such Impositions. In the event of a court decree or an enactment after the date hereof by any legislative
authority of any law imposing upon a mortgagee the payment of the whole or any part of the Impositions herein required to be paid
by Mortgagor, or changing in any way the laws relating to the taxation of mortgages or debts secured by mortgages or any mortgagee’s
interest in mortgaged property, so as to impose such Imposition on the Mortgagee or on the interest of the Mortgagee in the Mortgaged
Property, then, in any such event, the Mortgagor shall bear and pay the full amount of such Imposition, provided that if for any
reason payment by the Mortgagor of any such Imposition would be unlawful, or if the payment thereof would constitute usury or
render the Indebtedness wholly or partially usurious, the Mortgagee, at its option, may declare the whole sum secured by this
Mortgage with interest thereon to be immediately due and payable, without prepayment premium, or the Mortgagee, at its option,
may pay that amount or portion of such Imposition as renders the Indebtedness unlawful or usurious, in which event the Mortgagor
shall currently therewith pay the remaining lawful and non-usurious portion or balance of said Imposition.

 

Section
6. Payment of Utility Charges. Subject to “Permitted Contests” (as defined in Section 9), the Mortgagor shall
pay all charges made by utility companies, whether public or private, for electricity, gas, heat, water, or sewer, furnished or
used in connection with the Mortgaged Property or any part thereof, and will, upon written request of the Mortgagee, furnish proper
receipts evidencing such payment.

 

Section
7. Liens.

 

	A.	The
    Mortgagor shall not create, incur or suffer to exist any lien, encumbrance or charge on the Mortgaged Property or any part
    thereof which might or could be held to be equal or prior to the lien of this Mortgage, other than the Permitted Encumbrances
    set forth in Exhibit B hereto.
	 	 
	B.	The
    Mortgagor will pay, from time to time when the same shall become due, all lawful claims and demands of mechanics, suppliers,
    laborers and others which, if unpaid, might result in, or permit the creation of, a lien on the Mortgaged Property or any
    part thereof, or on the revenues, rents, issues, income and profits arising therefrom and in general will do or cause to be
    done everything necessary so that the prior lien hereof shall be fully preserved, at the cost of the Mortgagor, without expense
    to the Mortgagee.

 

Section
8. Compliance with Permitted Encumbrances and Laws. The Mortgagor shall comply with all present and future statutes, laws,
rules, orders, regulations and ordinances affecting the Mortgaged Property, the non-compliance with which will affect the value
of the Mortgaged Property as security in the judgment of the Mortgagee, any part thereof or the use thereof, including but not
limited to the Americans with Disabilities Act, and shall comply with all covenants, conditions and restrictions applicable to
the Mortgagor which are contained in any document constituting a Permitted Encumbrance as set forth in Exhibit B hereto.

 

    	5

    	 

    

 

Section
9. Permitted Contests. Notwithstanding the provisions of Section 5, 6 and 7 hereof, the Mortgagor shall not be required
to pay, discharge or remove any liens so long as the Mortgagor shall in good faith contest the same or the validity thereof by
appropriate legal proceedings which shall operate to prevent the collection of the liens so contested and the sale of the Mortgaged
Property, or any part thereof to satisfy same (“Permitted Contests”); provided that the Mortgagor shall, prior
to any such contest, have given such security as may be demanded by the Mortgagee to insure such payments and prevent any sale
or forfeiture of the Mortgaged Property by reason of such nonpayment. Any such contest shall be prosecuted with due diligence
and the Mortgagor shall promptly after final determination thereof pay the amount of any such liens or impositions so determined,
together with all interest and penalties, which may be payable in connection therewith. Notwithstanding the provisions of this
Section, the Mortgagor shall (and if the Mortgagor shall fail so to do, the Mortgagee, may but shall not be required to) pay any
such liens or impositions notwithstanding such contest if in the reasonable opinion of the Mortgagee, the Mortgaged Property shall
be in jeopardy or in danger of being forfeited or foreclosed.

 

Section
10. Insurance. The Mortgagor shall obtain and keep in full force and effect during the term of this Mortgage at its sole
cost and expense the following insurance: (a) insurance against loss by fire, lightning and risk customarily covered by standard
extended coverage endorsement, including the cost of debris removal, together with vandalism and malicious mischief endorsement,
or an all perils endorsement, all in the amount of not less than the full replacement cost of the Improvements of the Mortgaged
Property, and together with an inflation-guard endorsement, and agreed-amount endorsement, a replacement cost endorsement and
a waiver of subrogation endorsement; (b) broad form boiler and machinery insurance on all equipment and pressure-fired vehicles
or apparatus situate on the Mortgaged Property, and providing for full repair and replacement cost coverage; (c) flood insurance
in such amounts and with such minimal limits as the Mortgagee may require unless evidence is provided that the Mortgaged Property
is not within a flood plain as defined by the Federal Insurance Administration and the Mortgaged Property is not designated as
being within a flood plain during the term of this Mortgage; (d) comprehensive general public liability insurance covering the
legal liability of the Mortgagor against claims for bodily injury, death or property damage occurring on, in or about the Mortgaged
Property in such amounts and with such limits as determined by Mortgagee; (e) sprinkler insurance; (f) contingent liability insurance
and workers’ compensation insurance during the making of any alterations or Improvements to the Mortgaged Property; (g)
business income insurance in amounts sufficient to compensate Mortgagee for all rents from the Mortgaged Property during a period
of not less than twelve (12) months, with amount of coverage adjusted annually to reflect rents during succeeding twelve (12)
month period; and (h) such other forms of insurance as required in the Loan Agreement between Mortgagee and Mortgagor of even
date herewith (“Loan Agreement”) or as the Mortgagee may require or as may be required by law. Such insurance
policies shall be written on forms and with insurance companies having a minimum noncontingent rating in Best’s Casualty
Reports of A, Class X, shall be satisfactory to the Mortgagee, shall name as the insured parties the Mortgagor and the Mortgagee,
as their interests may appear, shall be in amounts sufficient to prevent the Mortgagor from becoming a co-insurer of any loss
thereunder, and shall bear a satisfactory mortgagee clause in favor of the Mortgagee with loss proceeds under any such policies
made payable to the Mortgagee. The Mortgagee shall be named as an additional insured along with the Mortgagor on such policies
of insurance for the additional benefits and protection of the Mortgagee. All required policies of insurance or acceptable certificates
thereof, together with the evidence of the payment of current premiums therefor, shall be delivered to the Mortgagee and shall
provide that the Mortgagee shall receive at least thirty (30) days’ advance written notice prior to cancellation, amendment
or termination of any such policy of insurance. The Mortgagor shall, within thirty (30) days prior to the expiration of any such
policy, deliver other original policies or certificates of the insurer evidencing the renewal of such insurance together with
evidence of the payment of current premiums therefor. Insurance coverage must at all times be maintained in proper relationship
to such replacement value and must always provide for agreed amount coverage. In the event of a foreclosure of this Mortgage or
any acquisition of the Mortgaged Property by the Mortgagee, all such policies and any proceeds payable therefrom, whether payable
before or after a foreclosure sale, or during the period of redemption, if any, shall become the absolute property of the Mortgagee
to be utilized at its discretion. In the event of foreclosure or the failure to obtain and keep any required insurance, the Mortgagor
empowers the Mortgagee to effect insurance upon the Mortgaged Property at the Mortgagor’s expense and for the benefit of
the Mortgagee in the amounts and types aforesaid for a period of time covering the time of redemption from foreclosure sale, and
if necessary therefor, to cancel any or all existing policies. The Mortgagor agrees to furnish the Mortgagee copies of all inspection
reports and insurance recommendations received by the Mortgagor from any insurer. The Mortgagee makes no representations that
the above requirements are adequate protection for a prudent mortgagor.

 

    	6

    	 

    

 

Section
11. Damage or Destruction of the Mortgaged Property. The Mortgagor will give prompt notice of any damage to or destruction
of the Mortgaged Property, and in case of loss covered by policies of insurance, the Mortgagor and the Mortgagee shall jointly
settle and adjust any claim arising out of such policies and shall jointly collect and receipt for the proceeds payable therefrom,
provided that the Mortgagor may itself adjust and collect for any losses arising out of a single occurrence not in excess of Fifty
Thousand and no/100 Dollars ($50,000.00). Any expense incurred by the Mortgagee in the adjustment and collection of insurance
proceeds (including the cost of any independent appraisal of the loss or damage on behalf of the Mortgagee) shall be reimbursed
to the Mortgagee first out of any proceeds. The proceeds or any part thereof shall be applied to reduction of the Indebtedness
then most remotely to be paid, whether due or not, unless the same are applied to the restoration or repair of the Mortgaged Property
in accordance with Section 13 hereof.

 

Section
12. Condemnation. The Mortgagor will give the Mortgagee prompt notice of any action, actual or threatened, in condemnation
or eminent domain and hereby assigns, transfers and sets over to the Mortgagee the entire proceeds of any award or claim for damages
for all or any part of the Mortgaged Property taken or damaged under the power of eminent domain or condemnation, the Mortgagee
being hereby authorized to intervene in any such action and to collect and receive from the condemning authorities and give proper
receipts and acquittance for such proceeds. The Mortgagor will not enter into any agreements with the condemning authority permitting
or consenting to the taking of the Mortgaged Property unless prior written consent of the Mortgagee is obtained. Any expenses
incurred by the Mortgagee in intervening in such action or collecting such proceeds (including the cost of any independent appraisal)
shall be reimbursed to the Mortgagee first out of the proceeds. The proceeds or any part thereof shall be applied to reduction
of the Indebtedness then most remotely to be paid, without prepayment penalty, whether due or not, unless the same are applied
to the restoration or repair of the Mortgaged Property in accordance with Section 13 hereof.

 

    	7

    	 

    

 

Section
13. Disbursement of Insurance and Condemnation Proceeds. So long as the provisions of this Section 13 are complied with,
any insurance or condemnation proceeds received in accordance with Sections 11 or 12 of this Mortgage shall be applied to the
restoration or repair of the Mortgaged Property. Such restoration or repair shall be done under the supervision of an architect
acceptable to the Mortgagee and pursuant to site and building plans and specifications reasonably approved by the Mortgagee. The
proceeds shall be held by the Mortgagee for such purposes and will from time to time be disbursed by the Mortgagee to defray the
costs of such restoration or repair under such safeguards and controls as the Mortgagee may reasonably require and in accordance
with standard construction loan procedures and sound lending practices. Prior to the payment or application of insurance proceeds
or a condemnation or eminent domain award to the repair or restoration of the Improvements upon the Mortgaged Property, the Mortgagee
shall be entitled to receive the following:

 

	A.	Evidence
    that no Event of Default exists under any of the terms, covenants and conditions of this Mortgage, the Loan Agreement, the
    Note, or other collateral security documents.
	 	 
	B.	Reasonably
    satisfactory proof that such Improvements have been fully restored, or that the expenditure of money as may be received from
    such insurance proceeds or eminent domain award will be sufficient to repair, restore or rebuild the Mortgaged Property, free
    and clear of all liens, except the lien of this Mortgage and the Permitted Encumbrances. In the event such insurance proceeds
    or eminent domain award shall be insufficient to repair, restore or rebuild the said Improvements, the Mortgagor or its lessee
    shall deposit with the Mortgagee funds equaling such deficiency, which, together with the insurance proceeds or eminent domain
    award, shall be sufficient to restore, repair and rebuild the Mortgaged Property.
	 	 
	C.	A
    statement of the Mortgagor’s architect or contractor, certifying the extent of the repair and restoration completed
    to the date thereof, and that such repairs, restoration and rebuilding have been performed to date in conformity with the
    plans and specifications approved by the Mortgagee, together with appropriate evidence of the cost for labor or materials
    furnished to the Mortgaged Property. Total or partial lien waivers shall be immediately delivered to Lender after payment
    of such costs are made and if payments are to be made as work is completed, lien waivers shall be delivered for the payment(s)
    already made prior to any future payment(s).
	 	 
	D.	Such
    insurance, in such amounts, issued by such company or companies and in such forms and of such substance and effect, as are
    reasonably required by the Mortgagee.

 

    	8

    	 

    

 

In
the event the Mortgagor shall fail to restore, repair or rebuild the Improvements upon the Mortgaged Property within a reasonable
time, then the Mortgagee, at its option, and upon not less than sixty (60) days’ written notice to the Mortgagor, may commence
to restore, repair or rebuild the Improvements for or on behalf of said Mortgagor, and for such purpose, may perform all necessary
acts to accomplish such restoration, repair or rebuilding. In the event insurance proceeds or an eminent domain award shall exceed
the amount necessary to complete the repair, restoration or the rebuilding of the Improvements upon the Mortgaged Property, such
excess may, at the Mortgagee’s option, be applied on account of the last maturing installments of the Indebtedness, irrespective
of whether such installments are then due and payable, or be returned to the Mortgagor. In the event the Mortgagor shall fail
to restore, repair or rebuild the Improvements upon the Mortgaged Property within a reasonable time, and if the Mortgagee does
not restore, repair or rebuild the said Improvements as herein provided, then the Mortgagee may, at its option, apply all or any
part of the insurance proceeds or condemnation or eminent domain award on account of the last maturing installments of the Indebtedness
whether then due or not, without application of a prepayment premium, or return the same to the Mortgagor.

 

Section
14. Preservation and Maintenance of Mortgaged Property. The Mortgagor: (i) shall keep the buildings and other Improvements
now or hereafter erected on the Land (including specifically without limitation the Improvements and the Chattels) in safe and
good repair and condition, ordinary depreciation and wear and tear excepted; (ii) shall, upon damage to or destruction of the
Mortgaged Property or any part thereof by fire or other casualty, restore, repair, replace or rebuild the Mortgaged Property that
is damaged or destroyed to the condition it was in immediately prior to such damage or destruction, whether or not any insurance
proceeds are available or sufficient for such purpose; (iii) shall constantly maintain or cause to be maintained the parking and
landscaped areas of the Mortgaged Property; (iv) shall not commit waste or permit impairment of deterioration of the Mortgaged
Property; (v) shall not alter or permit the alteration by any tenant of the design or structural character of any building now
or hereafter erected on the Land (including specifically without limitation the Improvements and the Chattels) or hereafter construct,
or permit any tenant to construct, additions to existing buildings or additional buildings on the Land without the prior written
consent of the Mortgagee which consent shall not be unreasonably withheld, delayed or conditioned; (vi) shall not remove from
the Land any of the fixtures and personal property included in the Mortgaged Property unless the same is promptly replaced with
property of at least equal value and utility, and this Mortgage becomes a valid first lien and security interest on such property.

 

Section
15. Inspection. The Mortgagee, or its agents, upon reasonable advanced written notice to Mortgagaor, shall have the right
at all reasonable times to enter upon the Mortgaged Property for the purposes of inspecting the Mortgaged Property or any part
thereof. The Mortgagee shall, however, have no duty to make such inspection. Any inspection by an agent or officer of the Mortgagee
of the Land and facilities constructed thereon, if occupied by lessee, shall be during normal business hours and after reasonable
notice to lessee and Mortgagee acknowledges and agrees that Mortgagee will not interfere with the business operations of the lessees
in the Mortgaged Property.

 

    	9

    	 

    

 

Section
16. Protection of Mortgagee’s Security. If the Mortgagor fails to perform any of the covenants and agreements contained
in this Mortgage or in the Loan Agreement after applicable cure periods expire, or if any action or proceeding is commenced which
affects the Mortgaged Property or the interest of the Mortgagee therein, or the title thereto, then the Mortgagee, at the Mortgagee’s
option, may perform such covenants and agreements, defend against and/or investigate such action or proceeding, and take such
other action as the Mortgagee deems necessary to protect the Mortgagee’s interest. The Mortgagee shall be the sole judge
of the legality, validity and priority of any claim, lien, encumbrance, tax, assessment, charge and premium paid by it and of
the amount necessary to be paid in satisfaction thereof. Any reasonable amounts or expenses disbursed or incurred by the Mortgagee
pursuant to this Section 16 with interest thereon, shall become additional Indebtedness of the Mortgagor secured by this Mortgage.
Unless the Mortgagor and the Mortgagee agree in writing to other terms of repayment, such amounts shall be immediately due and
payable, and shall bear interest as the interest rate per annum then in effect on the Note (unless collection from the Mortgagor
of interest at such rate of interest would be contrary to applicable law, in which event such amounts shall bear interest at the
highest rate of interest which may be collected from the Mortgagor under applicable law) from the date of such demand. The Mortgagee
shall, at its option, be subrogated to the lien of any mortgage or other lien discharged in whole or in part by the Indebtedness
or by the Mortgagee under the provisions hereof, and any such subrogation rights shall be additional and cumulative security for
this Mortgage. Nothing herein shall require the Mortgagee to incur any expense or do any act hereunder, and the Mortgagee shall
not be liable to the Mortgagor for any damages or claims arising out of action taken hereby by the Mortgagee.

 

Section
17. Hazardous Wastes or Substances.

 

	A.	Definitions.
    “Hazardous Wastes or Substances” means any hazardous or toxic materials, pollutants, chemicals, or contaminants,
    including without limitation asbestos, polychlorinated biphenyls (PCBs), mold/fungi and petroleum products as defined, determined
    or identified as such by any Laws, as hereinafter defined. The term “Laws” means any federal state or local laws,
    rules or regulations (whether now existing or hereafter enacted or promulgated) including without imitation, the Clean Water
    Act, 33 U.S.C. §§ 1251 et seq. (1972), the Clean Air Act, 42 U.S.C. §§ 7401 et seq. (1970),
    the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. § 1802, and the
    Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq., the Toxic Substances Control Act, or other similar
    laws, as well as implementing regulations enacted or promulgated to protect the public health, welfare or the environment,
    including state or local laws, regulations or ordinances, as well as any judicial or administrative interpretation thereof,
    including any judicial or administrative orders or judgments.
	 	 
	B.	Representations
    by the Mortgagor. The Mortgagor hereby represents to the Mortgagee that: (a) to the best of Mortgagor’s knowledge
    the Mortgaged Property has never been used either by previous owners or occupants or by the Mortgagor or current occupants
    to generate, manufacture, refine, transport, treat, store, handle or dispose of any Hazardous Wastes or Substances and no
    such material, substance or waste currently exists on the Mortgaged Property or in its soil or groundwater (except such solvents,
    cleaning materials and other substances in nominal amounts as are used in connection with the operation or maintenance of
    the Mortgaged Property and in compliance with applicable Laws); (b) to the best of Mortgagor’s knowledge without investigation,
    no portion of the Improvements on the Mortgaged Property has been constructed using Hazardous Wastes or Substances; (c) to
    the best of Mortgagor’s knowledge without investigation, the Mortgaged Property has never contained any underground
    or above ground storage tanks; and (d) the Mortgagor has not received nor does it have any knowledge of any summons, citation,
    directive, letter or other communication, written or oral, from any local, state or federal agency or department concerning
    (i) the existence of Hazardous Wastes or Substances on the Mortgaged Property (except such solvents, cleaning materials and
    other substances in nominal amounts as are used in connection with the operation or maintenance of the Mortgaged Property
    and in compliance with applicable Laws) or (ii) any intentional or unintentional action or omission on the part of the Mortgagor
    or any occupant of the Mortgaged Property resulting in the releasing, spilling, leaking, pumping, pouring, emitting, emptying,
    or dumping of Hazardous Wastes or Substances onto the Mortgaged Property or into waters or other lands.

 

    	10

    	 

    

 

	C.	Covenants
    of the Mortgagor. The Mortgagor hereby covenants with and to the Mortgagee that: (a) the Mortgagor shall (i) comply and
    shall cause all occupants of the Mortgaged Property to comply with all federal, state and local laws, rules, regulations and
    orders with respect to the discharge, generation, removal, transportation, storage and handling of Hazardous Wastes or Substances,
    (ii) remove or otherwise remediate any Hazardous Wastes and Substances immediately upon discovery of same (except such solvents,
    cleaning materials and other substances in nominal amounts as are used in connection with the operation or maintenance of
    the Mortgaged Property and in compliance with applicable Laws), and (iii) pay or cause to be paid all costs associated with
    such removal or remediation; (b) the Mortgagor shall keep the Mortgaged Property free of any lien imposed pursuant to any
    state or federal law, rule, regulation or order in connection with the existence of Hazardous Wastes or Substances on the
    Mortgaged Property; (c) the Mortgagor shall not install or permit to be installed or to exist in or on the Mortgaged Property
    any Hazardous Wastes or Substances (except such solvents, cleaning materials and other substances in nominal amounts as are
    used in connection with the operation or maintenance of the Mortgaged Property and in compliance with applicable Laws); and
    (d) the Mortgagor shall not cause or permit to exist, as a result of an intentional or unintentional act or omission on the
    part of the Mortgagor or any occupant of the Mortgaged Property, a releasing, spilling, leaking, pumping, emitting, pouring,
    emptying or dumping of any Hazardous Wastes or Substances onto the Mortgaged Property or into waters or other lands.
	 	 
	D.	Events
    of Defaults and Remedies. It shall constitute an Event of Default hereunder and the Mortgagee shall be entitled to exercise
    all remedies available to it hereunder if: (a) any of the Mortgagor’s representations contained herein prove to be materially
    false, inaccurate or misleading; (b) the Mortgagor shall fail to comply with the covenants contained in Section 17C herein;
    (c) any Hazardous Wastes or Substances are hereafter found to exist on the Mortgaged Property or in its soil or groundwater
    (except such solvents, cleaning materials and other substances in nominal amounts as are used in connection with the operation
    or maintenance of the Mortgaged Property and in compliance with applicable laws); or (d) any summons, citation, directive,
    letter or other communication, written or oral, shall be issued by any local, state or federal governmental agency concerning
    the matters described in Section 17B herein. Upon an Event of Default, the Mortgagor hereby grants the Mortgagee and its employees
    and agents an irrevocable and non-exclusive license to enter the Mortgaged Property, in order to inspect, conduct testing
    and remove Hazardous Wastes and Substances provided, however, such entry shall not unreasonably interfere with the business
    operations upon the Mortgaged Property. All reasonable costs of such inspection, testing and removal shall immediately become
    due and payable to the Mortgagee, shall be secured by this Mortgage and shall constitute additional Indebtedness.

 

    	11

    	 

    

 

	E.	Indemnification.
    The Mortgagor hereby agrees to defend, indemnify and hold harmless the Mortgagee, its directors, officers, employees, agents,
    contractors, subcontractors, licensees, invitees, successors and assigns (“Indemnified Parties”) from and
    against any and all claims, demands, judgments, damages, actions, causes of action, injuries, administrative orders, consent
    agreements and orders, liabilities, penalties, costs and expenses of any kind whatsoever, including claims arising out of
    loss of life, injury to persons, property or business or damage to natural resources (including, without limitation, reasonable
    attorneys’ fees and costs incurred in the investigation, defense and settlements of claims) incurred by the Indemnified
    Parties as a result of or in connection with the presence or removal of any Hazardous Wastes or Substances or as a result
    of or in connection with activities prohibited under this Section 17. The Mortgagor shall bear, pay and discharge, as and
    when the same become due and payable, any and all such judgments or claims for damages, penalties or otherwise, against the
    Indemnified Parties, shall hold the Indemnified Parties harmless against all claims, losses, damages, liabilities, costs and
    expenses, and shall assume the burden and expense of defending all suits, administrative proceedings, and negotiations of
    any description with any and all persons, political subdivisions or government agencies arising out of any of the occurrences
    set forth in this Section 17. This indemnification shall remain in full force and effect and shall survive the repayment of
    the Indebtedness and the satisfaction of the documents securing the same, as well as the exercise of any remedy by the Mortgagee
    hereunder or under the other documents securing this Mortgage or the Note, including a foreclosure of this Mortgage or the
    acceptance of a deed in lieu of foreclosure. The Indemnified Parties shall provide written notice to Mortgage of any claims
    or actions brought against the Indemnified Parties hereunder and Mortgagor shall have the right to defend such action, with
    legal counsel reasonably satisfactory to the Indemnified Parties.

 

Section
18. Financial Statements and Other Information; Books and Records; Appraisals. The Mortgagor will prepare or cause to be
prepared at its expense and deliver to the Mortgagee (in such number as may reasonably be requested) such financial statements
and books and records of operation as are required by the Loan Agreement. Mortgagor will provide for the payment of any appraisal
obtained by Mortgagee until payment in full of the Indebtedness should Mortgagee obtain any said appraisal subsequent to an Event
of Default, as defined below.

 

    	12

    	 

    

 

Section
19. No Secondary Financing. The Mortgagor shall not create, permit to be created or to remain any subordinate lien on the
Mortgaged Property or any part thereof to secure any indebtedness for borrowed money, without obtaining the prior written consent
of the Mortgagee.

 

Section
20. Events of Default. Each of the following occurrences shall constitute an event of default hereunder (herein called
an “Event of Default”):

 

	A.	The
    Mortgagor shall fail to pay within ten (10) days of when due, any installments of principal or interest are due under the
    Note.
	 	 
	B.	The
    Mortgagor shall fail to pay any other amounts required to be paid by the Mortgagor under the Note, the Loan Agreement or any
    of the Loan Documents (as defined in the Loan Agreement) or any other indebtedness of the Mortgagor to the Mortgagee.
	 	 
	C.	The
    Mortgagor shall fail to duly and punctually pay when and as due any payment for taxes and assessments required to be paid
    or shall fail to provide the insurance coverage required in this Mortgage.
	 	 
	D.	The
    Mortgagor shall generally fail to perform or observe any of the nonfinancial (i.e., not comprising payment and/or performance/reporting
    requirements) covenants or agreements contained in this Mortgage, the Loan Agreement or any documents executed in connection
    with the Note and such failure shall continue for a period of thirty (30) days following written notice from Mortgagor, to
    be extended for defaults not susceptible of cure within thirty (30) days (if Mortgagor is proceeding with due diligence to
    cure such default; however, such time period shall not be extended beyond sixty (60) days.
	 	 
	E.	The
    Mortgagor shall voluntarily file or cause to be filed against the Mortgagor, a petition under the United States Bankruptcy
    Code or laws, or a petition is filed by any other person under such laws against the Mortgagor, and the same is not dismissed
    by Court Order within sixty (60) calendar days; or an order for relief is entered or sought under the United States Bankruptcy
    Code or laws relating to the Mortgagor; or the Mortgagor makes an assignment for the benefit of creditors; or the Mortgagor
    shall apply for or consent to the appointment of any receiver, custodian, trustee, or a similar officer shall be appointed
    without the application or consent of the Mortgagor, and such appointment shall continue undischarged for a period of sixty
    (60) calendar days; or the Mortgagor shall institute (by petition, application, answer, consent, or otherwise) any bankruptcy,
    insolvency, reorganization, readjustment of debt, dissolution, liquidation, or similar proceedings relating to it under the
    laws of any jurisdiction; or any such proceeding shall be instituted (by petition, application, or otherwise) against the
    Mortgagor and shall remain undismissed for a period of sixty (60) calendar days.
	 	 
	F.	A
    judgment, writ or warrant of attachment or execution, or similar process shall be entered and become a lien on, issued or
    levied against, the Mortgaged Property or any part thereof and shall not be released, vacated or fully bonded within sixty
    (60) days after its entry, issue or levy.

 

    	13

    	 

    

 

	G.	The
    Mortgagor or and Guarantor shall be or become insolvent (whether in the equity or bankruptcy sense).
	 	 
	H.	Any
    representation or warranty made by the Mortgagor in the Loan Documents shall prove to be untrue or misleading in any material
    respect, or any statement, certificate or report furnished hereunder or under any of the foregoing documents by or on behalf
    of the Mortgagor shall prove to be materially untrue or misleading in any material respect on the date when the facts set
    forth and recited therein are stated or certified.
	 	 
	I.	The
    Mortgagor shall liquidate, wind up, merge, terminate or suspend its business operations, or sell all or substantially all
    of its assets, without the prior written consent of the Mortgagor.
	 	 
	J.	The
    Mortgagor shall fail to pay, withhold, collect or remit any tax or tax deficiency when assessed or due, or notice of any state
    or federal tax lien shall be filed or issued against the Mortgagor or its properties (including, without limitation, the Mortgaged
    Property or any portion thereof).
	 	 
	K.	Any
    property of the Mortgagor shall be garnished or attached in any proceeding and such garnishment or attachment shall remain
    undischarged for a period of thirty (30) days during which execution is not effectively stayed.
	 	 
	L.	The
    Mortgaged Property, or any part thereof, shall be sold, conveyed, transferred, or further encumbered without the prior written
    consent of the Mortgagor. This provision shall apply to each and every sale, transfer, conveyance or encumbrance regardless
    of whether or not the Mortgagee has consented or waived its rights, whether by action or non-action in connection with any
    previous sale, transfer, conveyance, encumbrance or transfer of possession.
	 	 
	M.	An
    event of default, however defined, shall occur under the Loan Agreement or any documents executed in connection with the Note,
    any other mortgage, assignment or other security document constituting a lien on the Mortgaged Property or any part thereof
    and shall continue beyond any applicable period of grace.

 

Section
21. Acceleration; Foreclosure. Upon the occurrence of any Event of Default, the Mortgagee may, at its option, exercise
one or more of the following rights and remedies (and any other rights and remedies which are available to the Mortgagee under
applicable law or other collateral documents):

 

	A.	The
    Mortgagee may declare immediately due and payable all unpaid principal of and accrued interest on any Indebtedness, together
    with all other sums due hereunder, and the same shall thereupon be immediately due and payable without presentment or other
    demand, protest, notice of dishonor or any other notice of any kind, all of which are hereby expressly waived.

 

    	14

    	 

    

 

	B.	The
    Mortgagee may exercise any or all of its rights and remedies under the Note, the Loan Agreement or any documents executed
    in connection with the Note.
	 	 
	C.	The
    Mortgagee may (and is hereby authorized and empowered to) pursuant to law of the State of Minnesota in such case made and
    provided, such power being expressly granted to sell the Mortgaged Property at public auction and convey the same to the purchaser
    in fee simple and out of the proceeds arising from such sale to pay all Indebtedness with interest, and all legal costs and
    charges of such foreclosure and reasonable attorneys’ fees permitted by law, which costs, charges and fees the Mortgagor
    agrees to pay.
	 	 
	D.	Mortgagee
    may obtain a judgment for any deficiency against Mortgagor remaining in the indebtedness due to Mortgagee after application
    of all amounts received from the exercise of the rights provided in this Section if Lender forecloses the Mortgage by action.
	 	 
	E.	Mortgagee
    shall have and may exercise with respect to the Personal Property, all the rights and remedies accorded upon default to a
    secured party under the Minnesota Uniform Commercial Code. If notice to Mortgagor of intended disposition of such property
    is required by law in a particular instance, such notice shall be deemed commercially reasonable if given to Mortgagor at
    least ten (10) days prior to the date of intended disposition.
	 	 
	F.	The
    Mortgagee shall be entitled without any showing of waste of the Mortgaged Property, inadequacy of the Mortgaged Property as
    security, or insolvency of the Mortgagor upon an Event of Default, to the appointment of a receiver of the rents and profits
    of the Mortgaged Property, including those past due, pursuant to Minnesota Statutes, Section 576.25, Subsection 5, or any
    other provision of Minnesota Statutes in effect at such time. The Mortgagee or any receiver shall be entitled to receive and
    dispose of the profits and income of the Mortgaged Property and to sue for and recover any account or other item of profits
    and income from the Mortgagor or any account debtor or other third person. Subject to any order of a court appointing a receiver
    and applicable provisions of Minnesota Statutes, the Mortgagee in its discretion may apply the profits and income:

 

	 	(i)	to
    the expenses of operating the Mortgaged Property and conducting the business thereof,
	 	 	 
	 	(ii)	to
    the repairs, maintenance, renewals, replacements, alterations, additions, betterments and Improvements of the Mortgaged Property,
	 	 	 
	 	(iii)	to
    the payment of reserves that may be made or set up in the Mortgagee’s discretion for taxes, assessments, insurance and
    other proper charges upon or in connection with the operation of the Mortgaged Property or any part thereof,
	 	 	 
	 	(iv)	to
    the just and reasonable compensation of the Mortgagee for its own services and for the services of counsel, agents and employees
    by it properly engaged and employed, and
	 	 	 
	 	(v)	to
    the reimbursement of the Mortgagee for the Indebtedness.

 

    	15

    	 

    

 

	G.	Mortgagee
    shall have all other rights and remedies provided in this Mortgagee or in the Note and Loan Agreement between Mortgagee and
    Mortgagor.

 

MORTGAGOR
EXPRESSLY CONSENTS AND AGREES THAT THE MORTGAGED PROPERTY MAY BE FORECLOSED BY ADVERTISEMENT AND THAT PERSONAL PROPERTY COVERED
BY THIS MORTGAGE AND SECURITY AGREEMENT MAY BE DISPOSED OF PURSUANT TO THE UNIFORM COMMERCIAL CODE, ALL AS DESCRIBED HEREIN.

 

Section
22. Forbearance Not a Waiver; Rights and Remedies Cumulative. No delay by the Mortgagee in exercising any right or remedy
provided herein or otherwise afforded by law or equity shall be deemed a waiver of or preclude the exercise of such right or remedy,
and no waiver by the Mortgagee of any particular provision of this Mortgage shall be deemed effective unless in writing signed
by the Mortgagee. All such rights and remedies provided for herein or which the Mortgagee may have otherwise, at law or in equity,
shall be distinct, separate and cumulative and may be exercised concurrently, independently or successively in any order whatsoever,
and as often as the occasion therefor arises.

 

Section
23. Assignment of Leases and Rents.

 

	A.	Assignment:
    Mortgagor hereby grants, transfers, and assigns to Mortgagee all the right, title and interest of Mortgagor in and to the
    rents, income and profits (“Rents”) and all existing and subsequent leases or agreements for the leasing
    of the Mortgaged Property (“Leases”) as additional security for the payment of all other sums, with interest
    thereon, becoming due and payable to Mortgagee pursuant to the covenants and agreements of this Mortgage and of the Note,
    and performance and discharge of each and every obligation, covenant and agreement of Mortgagor pursuant to this Mortgage
    and the Note.
	 	 
	B.	Present
    Assignment: This assignment shall constitute an absolute and present assignment; provided, however, that Mortgagor shall have
    a revocable license to collect, but not prior to accrual, all the Rents, and to retain, use and enjoy the same unless and
    until an Event of Default shall occur and following the expiration of applicable cure periods.
	 	 
	C.	Remedies:
    Upon or at any time after an Event of Default and following the expiration of applicable cure periods, Mortgagee may, at its
    option, enter upon, manage and operate the Mortgaged Property in the name, place and stead of Mortgagor or retain the services
    of an independent contractor to manage and operate the same; make, enforce, modify and accept surrender of any leases; obtain
    or evict tenants, collect, sue for, fix or modify rentals and enforce all rights of the Mortgagor under any leases; and perform
    any and all other acts that may be necessary or proper to protect the security of this assignment of rents; or apply for and
    the Mortgagee hereby consents to the appointment of a receiver of the Mortgaged Property, whether or not proceedings for the
    foreclosure of the Mortgage have been commenced, and if such proceedings have been commenced, whether or not a foreclosure
    sale has occurred.

 

    	16

    	 

    

 

	 	The
    exercise of any of the foregoing rights or remedies shall not cure or waive any default under the Mortgage or invalidate any
    act done by virtue of such default.
	 	 
	D.	Application
    of Rents: Subject to any order of a court appointing such receiver and the Minnesota Statutes, all Rents of the Mortgaged
    Property collected by Mortgagee or by any receiver shall be held and applied in the following order:

 

	 	(i)	To
    pay all of the reasonable fees of the receiver, if any, approved by the Court.
	 	 	 
	 	(ii)	To
    the extent possible and in the order determined by the receiver to preserve the value of the Mortgaged Property in accordance
    with Minnesota Statutes § 576.25, Subdivision 5(d) or other Minnesota Statutes in effect from time to time.
	 	 	 
	 	(iii)	To
    Mortgagee in payment of the Indebtedness secured hereby in such order of application as Mortgagee may elect, or in the event
    that a foreclosure of this Mortgage shall have occurred as a credit to the amount required to redeem from such foreclosure,
    and if there be no such redemption, then to Mortgagee absolutely.

 

The
rights and powers of Mortgagee under this assignment and the application of Rents of the Mortgaged Property pursuant to this Section
23 shall continue and remain in full force and effect both before and after commencement of any action or proceeding to foreclose
the Mortgage, and until expiration of the period of redemption from any such foreclosure sale, whether or not any deficiency from
the unpaid balance of the indebtedness secured hereby exists after such foreclosure sale.

 

Section
24. Subsequent Agreements. Any agreement hereafter made by the Mortgagor and the Mortgagee pursuant to this Mortgage shall
be superior to the rights of the holder of any intervening lien or encumbrance.

 

Section
25. Waiver of Appraisement, Homestead, Marshaling, Etc. The Mortgagor hereby waives to the full extent lawfully allowed
the benefit of any homestead, appraisement, evaluation, stay and extension laws now or hereinafter in force. The Mortgagor hereby
waives any rights available with respect to marshaling of assets so as to require the separate sales of any portion of the Mortgaged
Property, or as to require the Mortgagee to exhaust its remedies against a specific portion of the Mortgaged Property before proceeding
against the other and does hereby expressly consent to and authorize the sale of the Mortgaged Property or any part thereof as
a single economic unit or parcel.

 

Section
26. Business Loan Representation. The Mortgagor represents and warrants to the Mortgagee that the loan evidenced by the
Note is a business loan transacted solely for the purpose of carrying on the business of the Mortgagor and that none of the Mortgaged
Property is classified as homestead property.

 

Section
27. Nonagricultural Property. Mortgagor hereby states and certifies of its own personal knowledge that the Mortgaged Property
is not “agricultural property” or “agricultural land” as those terms are defined in Minnesota Statutes,
nor is the Mortgaged Property held or used for “agricultural use” as those terms are defined in Minnesota Statutes.

 

    	17

    	 

    

 

Section
28. Attorneys’ Fees and Expenses. In the event the Mortgagor should default under any of the provisions of this Mortgage
and the Mortgagee should employ attorneys or incur other expenses for the collection of amounts due hereunder or the enforcement
of performance of any obligation or agreement on the part of the Mortgagor contained in this Mortgage, or any other instrument
securing the obligation to repay the Note, the Mortgagor will pay to the Mortgagee on demand the reasonable fees of such attorneys
and such other reasonable expenses so incurred.

 

Section
29. Indemnification by Mortgagor. The Mortgagor will protect, indemnify, and save harmless the Mortgagee from and against
all liabilities, obligations, claims, damages, penalties, causes of action, costs, and expenses (including, without limitation,
attorneys fees and expenses) imposed upon or incurred by or asserted against the Mortgagee by reason of (a) ownership of the Mortgaged
Property, or any interest therein, or receipt of any rent or other sum therefrom, (b) any accident, injury to or death of persons
or loss of or damage to property occurring on or about the Mortgaged Property or any part thereof or the adjoining sidewalks,
curbs, vaults, and vault space, if any except if caused by the willful misconduct or gross negligence of the Mortgagee or its
agents after Mortgagee gains possession of the Mortgaged Premises or takes title to the Mortgaged Premises, (c) any use, non-use,
or condition of the Mortgaged Property or any part thereof or the adjoining sidewalks, curbs, vaults, and vault space, if any,
(d) any failure on the part of the Mortgagor to perform or comply with any of the terms of this Mortgage, (e) performance of any
labor or services or the furnishing of any materials or other property in respect to the Mortgaged Property or any part thereof,
(f) any negligence or tortious act on the part of the Mortgagor or any of its agents, contractors, sublessees, licensees, or invitees,
or (g) exercise by the Mortgagee of any remedy provided hereunder or at law or equity, unless such were the result of bad faith
or willful misconduct of the Mortgagee. Any amounts, payable to the Mortgagee under this section, which are not paid within thirty
(30) days after written demand therefor by the Mortgagee shall bear interest at the interest rate per annum then in effect on
the Note (unless collection from the Mortgagor of interest at such rate of interest would be contrary to applicable law, in which
event such amounts shall bear interest at the highest rate of interest which may be collected from the Mortgagor under applicable
law) from the date of such demand, and shall be secured by this Mortgage. If any action, suit, or proceeding is brought against
the Mortgagee by reasons of any such occurrence, the Mortgagor upon the Mortgagee’s request will, at the Mortgagor’s
expense, resist and defend such action, suit, or proceeding or will cause the same to be resisted and defended by counsel for
the insurer of the liability or by counsel designated by the Mortgagor approved by the Mortgagee.

 

Section
30. Successors and Assigns Bound; Agents; Captions. The covenants and agreements herein contained shall bind, and the rights
hereunder shall inure to, the respective heirs, legal representatives, successors and assigns of the Mortgagee and the Mortgagor.
The captions and headings in this Mortgage are for convenience only and are not to be used to interpret or define the provisions
hereof.

 

    	18

    	 

    

 

Section
31. Notice. Any notice under this Mortgage shall be effective upon placing thereof in the United States mail, certified
mail with return receipt requested, postage prepaid, to the parties at the following addresses:

 

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

 

or
at such other address as the Mortgagor or the Mortgagee may designate in writing to the other party in compliance with this Section
31.

 

Section
32. Governing Law; Severability. This Mortgage shall be governed by the substantive laws of the State of Minnesota. Any
provision of this Mortgage which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof. In the event that any provision or clause of this Mortgage conflicts with
applicable law, such conflict shall not affect other provisions of this Mortgage which can be given effect without the conflicting
provisions and to this end the provisions of this Mortgage are declared to be severable.

 

Section
33. Counterparts. This Mortgage may be executed in any number of counterparts, each of which shall be an original, but
all of which together shall constitute one instrument.

 

Section
34. Uniform Commercial Code.

 

	A.	Security
    Agreement. This Mortgage shall constitute a security agreement as defined in the Uniform Commercial Code as adopted in
    the jurisdiction in which the Mortgaged Property is located (hereinafter referred to as the “Code”), and Mortgagor
    hereby grants to Mortgagee a security interest within the meaning of the Code in favor of Mortgagee on the Chattels, the Improvements,
    the Rents, the Leases and all other property rights, and the proceeds of the foregoing as described in the granting clause
    of this Mortgage (hereinafter referred to as the “Collateral”).
	 	 
	 	Mortgagor
    hereby authorizes Mortgagee at any time or from time to time to file any initial financing statements, amendments thereto
    and continuation statements (“Financing Statements”) with or without signature of Mortgagor as authorized
    by applicable law, as applicable to the Mortgaged Property. For purposes of such filings, Mortgagor agrees to furnish any
    information requested Mortgagee promptly upon request by Mortgagee.

 

    	19

    	 

    

 

	 	Mortgagor
    and Mortgagee agree that the filing of a Financing Statement in the records normally having to do with personal property shall
    never be construed as in any way derogating from or impairing (a) this Mortgage or the rights or obligations under it or (b)
    the express declaration and intention of the parties, hereinabove stated, that everything used in connection with the Mortgaged
    Property and/or adapted for use therein and/or which is described or reflected in this Mortgage is and, at all times and for
    all purposes and in all proceedings both legal or equitable, shall be regarded as part of the real estate encumbered by this
    Mortgage irrespective of whether (i) any such item is physically attached to the Improvements, (ii) serial numbers are used
    for the better identification of certain equipment items capable of being thus identified in a recital contained herein or
    in any list filed with Mortgagee or (iii) any such item is referred to or reflected in any such Financing Statement so filed
    at any time. Similarly, the mention in any such Financing Statement of (1) rights in or to the proceeds of any fire and/or
    hazard insurance policy, or (2) any award in eminent domain proceedings for a taking or for lessening of value, or (3) Mortgagor’s
    interest as lessor in any present or future lease or rights to income growing out of the use and/or occupancy of the property
    conveyed hereby, whether pursuant to lease or otherwise, shall never be construed as in any way altering any of the rights
    of Mortgagee as determined by this instrument or impugning the priority of Mortgagee’s lien granted hereby or by any
    other recorded document, but such mention in the Financing Statement is declared to be solely for the protection of Mortgagee
    in the event any court or judge shall at any time hold with respect to the matters set forth in the foregoing clauses that
    notice of Beneficiary’s priority of interest to be effective against a particular class of persons, including but not
    limited to the federal government and any subdivisions or entity of the federal government, must be filed in the Uniform Commercial
    Code records.
	 	 
	B.	Fixture
    Filing. From the date of its recording, THIS MORTGAGE SHALL BE EFFECTIVE AS A FINANCING STATEMENT FILED AS A FIXTURE FILING
    from the date of its filing in the real estate records of the County where the Mortgaged Property is situated with respect
    to all goods constituting part of the Mortgaged Property, including the Improvements and the Chattels (as defined in this
    Mortgage) which are or are to become fixtures related to the real estate described herein. For this purpose, the following
    information is set forth:

 

	 	(i)	Name
    and Address of Debtor:
	 	 	 
	 	 	WSI
    Industries, Inc. 
	 	 	213
    Chelsea Road
	 	 	Monticello,
    MN 55362
	 	 	Organizational
    Filing No. K-680
	 	 	 
	 	(ii)	Name
    and Address of Secured Party:
	 	 	 
	 	 	Tradition
    Capital Bank
	 	 	7601
    France Avenue South, Suite 140
	 	 	Edina,
    MN 55435
	 	 	Attn:
    Natalia Armitage 
	 	 	 
	 	(iii)	This
    document covers goods which are or are to become fixtures.

 

    	20

    	 

    

 

	C.	Representations
    and Agreements. Mortgagor represents and agrees: 

 

	 	(a)	Mortgagor
    is and will be the true and lawful owner of the Collateral, subject to no liens, charges, security interest and encumbrances
    other than the lien hereof and the Permitted Encumbrances.
	 	 	 
	 	(b)	The
    Collateral is to be used by Mortgagor solely for business purposes being installed upon the Mortgaged Property for Mortgagor’s
    own use or as the equipment and furnishings leased or furnished by Mortgagor, as landlord, to tenants of the Mortgaged Property.
	 	 	 
	 	(c)	The
    Collateral will not be removed from the Mortgaged Property without the consent of the Mortgagee which consent shall not be
    unreasonably withheld, delayed or conditioned.
	 	 	 
	 	(d)	Unless
    stated otherwise in this Mortgage the only persons having any interest in the Collateral are Mortgagor and Mortgagee and no
    financing statement covering any such property and any proceeds thereof is on file in any public office except pursuant hereto.
	 	 	 
	 	(e)	The
    remedies of Mortgagee hereunder are cumulative and separate, and the exercise of any one or more of the remedies provided
    for herein or under the Uniform Commercial Code shall not be construed as a waiver of any of the other rights of Mortgagee
    including having such Collateral deemed part of the Land upon any foreclosure thereof.
	 	 	 
	 	(f)	If
    notice to any party of the intended disposition of the Collateral is required by law in a particular instance, such notice
    shall be deemed commercially reasonable if given at least ten (10) days prior to such intended disposition and may be given
    by advertisement in a newspaper accepted for legal publications either separately or as part of a notice given to foreclose
    the Mortgaged Property or may be given by private notice if such parties are known to Mortgagee.
	 	 	 
	 	(g)	Mortgagor
    will from time to time provide Mortgagee on reasonably request with itemizations of all such Collateral on the Premises.
	 	 	 
	 	(h)	The
    filing of a financing statement pursuant to the Code shall never impair the stated intention of this Mortgage that all Chattels
    and Improvements are, and at all times and for all purposes and in all proceedings both legal or equitable shall be regarded
    as part of the Land irrespective of whether such item is physically attached to the Land or any such item is referred to or
    reflected in a financing statement.
	 	 	 
	 	(i)	Mortgagor
    will on demand deliver all financing statements and/or continuations that may from time to time be required by Mortgagee to
    establish and perfect the priority of Mortgagee’s security interest in such Collateral and all costs, including recording
    fees, shall be paid by Mortgagor.

 

    	21

    	 

    

 

	 	(j)	Mortgagor
    shall give advance written notice of any proposed change in Mortgagor’s name, address, identity or structure and will
    execute and deliver to Mortgagee prior to or concurrently with such change all additional financing statements that Mortgagee
    may require to establish and perfect the priority of Mortgagee’s security interest.
	 	 	 
	 	(k)	Mortgagor
    shall renew and pay all expenses of renewing the financing statement covering the Collateral in the event the security interest
    in such Collateral will expire by reason of statutory law prior to the end of the term of this Mortgage.

 

Section
35. Further Assurances. At any time and from time to time until payment in full of the Indebtedness, the Mortgagor will,
at the reasonable request of the Mortgagee, promptly execute and deliver to the Mortgagee such additional instruments as may be
reasonably required further to evidence the lien of this Mortgage and further to protect the security interest of the Mortgagee
with respect to the Mortgaged Property including, without limitation, additional security agreements, financing statements and
continuation statements. Any reasonable expenses incurred by the Mortgagee in connection with the preparation and recordation
of any such instruments, including, but not limited to reasonable attorneys’ fees, shall become additional Indebtedness
of the Mortgagor secured by this Mortgage. Unless the Mortgagor and the Mortgagee agree in writing to other terms of repayment,
such amounts shall be immediately due and payable, and shall bear interest at the annual rate then in effect on the Note, unless
collecting from the Mortgagor of interest at such rate would be contrary to applicable law, in which event such amounts shall
bear interest at the highest rate which may be collected from the Mortgagor under applicable law.

 

Section
36. Due on Sale or Mortgaging, Etc. In the event the Mortgagor sells, conveys, transfers, further encumbers, changes the
form of ownership or otherwise disposes of the Mortgaged Property, or any part thereof, or any interest therein or transfers the
full possessory rights to the Mortgaged Property whether voluntarily or involuntarily, without the written consent of the Mortgagee
being first obtained, then at the sole option of the Mortgagee, the Mortgagee may declare the entire principal and interest evidenced
by the Note due and payable in full and call for payment of the same at once. Any transfer of a partnership, beneficial or corporate
ownership interest in Mortgagor shall constitute a conveyance for purposes of this Section and the consent of the Mortgagee shall
be required. In the event the Mortgagor shall request the consent of the Mortgagee to any of the foregoing events, the Mortgagor
shall deliver a written request to the Mortgagee together with complete information regarding such conveyance, transfer or encumbrance
and shall allow the Mortgagee thirty (30) days after delivery of all required information for evaluation of such request. In the
event that such request is not approved within such thirty (30) day period, it shall be deemed not approved. Mortgagee may charge
an administrative fee to process any such sale, conveyance, transfer, mortgage or other encumbrances. Such approval may be subject
to such modifications of the loan terms, interest rate and maturity date as may be established by the Mortgagee. Consent as to
any one transaction shall not be deemed to be a waiver of the right to require consent to future or successive transactions.

 

Section
37. Release and Discharge. Upon payment in full of all Indebtedness as defined herein, the Mortgagee shall execute and
deliver a satisfaction of this Mortgage.

 

Section
38. Incorporation of Documents. The provisions of the Note and Loan Agreement are by this reference incorporated into and
made a part of this Mortgage and the Mortgagee is entitled to all the benefits, rights and privileges in any such instruments.

 

[SIGNATURE
PAGE TO FOLLOW]

 

    	22

    	 

    

 

IN
WITNESS WHEREOF, the Mortgagor has caused this Mortgage to be duly executed as of the day and year first above written.

 

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

 

	STATE
    OF MINNESOTA	)
	 	)
    ss.
	COUNTY
    OF HENNEPIN	)

 

The
foregoing instrument was acknowledged before me this ____ day of February, 2017, by Paul D. Sheely, the Chief Financial Officer
of WSI Industries, Inc., a Minnesota corporation, on behalf of the corporation.

 

	 	 
	 	Notary
    Public

 

SEND
TAX STATEMENTS TO:

WSI
Industries, Inc.

213
Chelsea Road

Monticello,
MN 55362

 

THIS
INSTRUMENT PREPARED BY:

Michelle
R. Jester, Esq.

Messerli
& Kramer P.A.

1400
Fifth Street Towers

100
South Fifth Street

Minneapolis,
MN 55402

(612)
672-3600

 

    	23

    	 

    

 

EXHIBIT
A

 

Legal
Description

 

Lot
1, Block 1, Remmele Addition, according to the recorded plat thereof, Wright County, Minnesota.

 

(Abstract
Property)

 

    	A -1

    	 

    

 

EXHIBIT
B

 

Permitted
Encumbrances

 

	 	1.	Real
    estate taxes due and payable in 2017 and thereafter. 
	 	 	 
	 	2.	Special
    assessments levied for Road and certified to 2017 taxes in the amount of $4,884.41; balance is $18,786.25. There are no pending
    special assessments now a lien on the property.
	 	 	 
	 	3.	Drainage
    and utility easement(s) over part of the subject property as shown on the recorded plat of Remmele Addition.
	 	 	 
	 	4.	Restricted
    access to Interstate Highway 94 acquired by the State of Minnesota as evidenced by Final Certificate dated October 18, 1973,
    filed November 7, 1973 as Document No. 287159.
	 	 	 
	 	5.	Slope
    easement in favor of the City of Monticello as evidenced by Agreement dated July 16, 1990, filed July 19, 1990 as Document
    No. 476134.

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