Document:

Loan Agreement between Schmitt Industries, Inc. and Bank of America, N.A.

 Exhibit 10.1 
  

			
	

	  	

 LOAN AGREEMENT 
 This Agreement dated as of February 13, 2009, is between Bank of America, N.A. (the “Bank”) and Schmitt Industries, Inc. (the “Borrower”). 
  

	1.	FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS 

 1.1 Line of Credit
Amount. 
  

	(a)	During the availability period described below, the Bank will provide a line of credit to the Borrower. The amount of the line of credit (the “Facility No. 1
Commitment”) is One Million and 00/100 Dollars ($1,000,000.00). 

  

	(b)	This is a revolving line of credit. During the availability period, the Borrower may repay principal amounts and reborrow them. 

  

	(c)	The Borrower agrees not to permit the principal balance outstanding to exceed the Facility No. 1 Commitment. If the Borrower exceeds this limit, the Borrower will immediately
pay the excess to the Bank upon the Bank’s demand. 

 1.2 Availability Period. The line of credit is available between the date of
this Agreement and March 1, 2011, or such earlier date as the availability may terminate as provided in this Agreement (the “Facility No. 1 Expiration Date”). 
 The availability period for this line of credit will be considered renewed if and only if the Bank has sent to the Borrower a written notice of renewal for the line of credit (the “Renewal Notice”). If this
line of credit is renewed, it will continue to be subject to all the terms and conditions set forth in this Agreement except as modified by the Renewal Notice. If this line of credit is renewed, the term “Expiration Date” shall mean the
date set forth in the Renewal Notice as the Expiration Date and the same process for renewal will apply to any subsequent renewal of this line of credit. A renewal fee may be charged at the Bank’s option. The amount of the renewal fee will be
specified in the Renewal Notice. 
 1.3 Repayment Terms. 
  

	(a)	The Borrower will pay interest on March 1, 2009, and then on the same day of each month thereafter until payment in full of any principal outstanding under this facility.

  

	(b)	The Borrower will repay in full any principal, interest or other charges outstanding under this facility no later than the Facility No. 1 Expiration Date. Any interest period
for an optional interest rate (as described below) shall expire no later than the Facility No. 1 Expiration Date. 

 1.4 Interest
Rate. 
  

	(a)	The interest rate is a rate per year equal to the Bank’s Prime Rate. 

  

	(b)	The Prime Rate is the rate of interest publicly announced from time to time by the Bank as its Prime Rate. The Prime Rate is set by the Bank based on various factors, including the
Bank’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans. The Bank may price loans to its customers at, above, or below the Prime Rate. Any change in the Prime Rate
shall take effect at the opening of business on the day specified in the public announcement of a change in the Bank’s Prime Rate. 

 1.5
Optional Interest Rates. Instead of the interest rate based on the rate stated in the paragraph entitled “Interest Rate” above, the Borrower may elect the optional interest rates listed below for this Facility No. 1 during
interest periods agreed to by the Bank and the Borrower. The optional interest rates shall be subject to the terms and conditions described later in this Agreement. Any principal amount bearing interest at an optional rate under this Agreement is
referred to as a “Portion.” The following optional interest rates are available: 
  

	(a)	The LIBOR Rate plus 2.00 percentage point(s). 

  

					
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	2.	OPTIONAL INTEREST RATES 

 2.1 Optional Rates. Each optional interest
rate is a rate per year. Interest will be paid on March 1, 2009, and then on the same day of each month thereafter until payment in full of any principal outstanding under this Agreement. No Portion will be converted to a different interest
rate during the applicable interest period. Upon the occurrence of an event of default under this Agreement, the Bank may terminate the availability of optional interest rates for interest periods commencing after the default occurs. At the end of
each interest period, the interest rate will revert to the rate stated in the paragraph(s) entitled “Interest Rate” above, unless the Borrower has designated another optional interest rate for the Portion. 
 2.2 LIBOR Rate. The election of LIBOR Rates shall be subject to the following terms and requirements: 
  

	(a)	The interest period during which the LIBOR Rate will be in effect will be one month. The first day of the interest period must be a day other than a Saturday or a Sunday on which
banks are open for business in New York and London and dealing in offshore dollars (a “LIBOR Banking Day”). The last day of the interest period and the actual number of days during the interest period will be determined by the Bank using
the practices of the London inter-bank market. 

  

	(b)	Each LIBOR Rate portion will be for an amount not less than One Hundred Thousand and 00/100 Dollars ($100,000.00). 

  

	(c)	A LIBOR Rate may be elected only for the entire principal amount outstanding under the applicable facility. 

  

	(d)	The “LIBOR Rate” means the interest rate determined by the following formula. (All amounts in the calculation will be determined by the Bank as of the first day of the
interest period.) 

  

					
	LIBOR Rate =	  	London Inter-Bank Offered Rate	  	
		  	(1.00 - Reserve Percentage)	  

 Where, 
  

	 	(i)	“London Inter-Bank Offered Rate” means for any applicable interest period, the rate per annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”),
as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as selected by the Bank from time to time) at approximately 11:00 a.m. London time two (2) London Banking Days before the commencement of the
interest period for U.S. Dollar deposits (for delivery on the first day of such interest period) with a term equivalent to such interest period. If such rate is not available at such time for any reason then the rate for that interest period
will be determined by such alternate method as reasonably selected by the Bank. A “London Banking Day” is a day on which banks in London are open for business and dealing in offshore dollars. 

  

	 	(ii)	“Reserve Percentage” means the total of the maximum reserve percentages for determining the reserves to be maintained by member banks of the Federal Reserve System for
Eurocurrency Liabilities, as defined in Federal Reserve Board Regulation D, rounded upward to the nearest 1/100 of one percent. The percentage will be expressed as a decimal, and will include, but not be limited to, marginal, emergency,
supplemental, special, and other reserve percentages. 

  

	(e)	The Borrower shall irrevocably request a LIBOR Rate Portion no later than 12:00 noon Pacific time on the LIBOR Banking Day preceding the day on which the London Inter-Bank Offered
Rate will be set, as specified above. For example, if there are no intervening holidays or weekend days in any of the relevant locations, the request must be made at least three days before the LIBOR Rate takes effect. 

  

	(f)	The Bank will have no obligation to accept an election for a LIBOR Rate Portion if any of the following described events has occurred and is continuing: 

  

	 	(i)	Dollar deposits in the principal amount, and for periods equal to the interest period, of a LIBOR Rate Portion are not available in the London inter-bank market; or

  

					
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	 	(ii)	The LIBOR Rate does not accurately reflect the cost of a LIBOR Rate Portion. 

  

	(g)	Each prepayment of a LIBOR Rate Portion, whether voluntary, by reason of acceleration or otherwise, will be accompanied by the amount of accrued interest on the amount prepaid and a
prepayment fee as described below. A “prepayment” is a payment of an amount on a date earlier than the scheduled payment date for such amount as required by this Agreement. 

  

	(h)	The prepayment fee shall be in an amount sufficient to compensate the Bank for any loss, cost or expense incurred by it as a result of the prepayment, including any loss of
anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Portion or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay
any customary administrative fees charged by the Bank in connection with the foregoing. For purposes of this paragraph, the Bank shall be deemed to have funded each Portion by a matching deposit or other borrowing in the applicable interbank market,
whether or not such Portion was in fact so funded. 

  

	3.	COLLATERAL 

 3.1 Personal Property. The personal property listed
below now owned or owned in the future by the parties listed below will secure the Borrower’s obligations to the Bank under this Agreement. The collateral is further defined in security agreement(s) executed by the owners of the collateral. In
addition, all personal property collateral owned by the Borrower securing this Agreement shall also secure all other present and future obligations of the Borrower to the Bank (excluding any consumer credit covered by the federal Truth in Lending
law, unless the Borrower has otherwise agreed in writing or received written notice thereof). All personal property collateral securing any other present or future obligations of the Borrower to the Bank shall also secure this Agreement. 

 

	(a)	Inventory owned by the Borrower. 

  

	(b)	Receivables owned by the Borrower. 

  

	4.	FEES AND EXPENSES 

 4.1 Fees. 
  

	(a)	Unused Commitment Fee. The Borrower agrees to pay a fee on any difference between the Facility No. 1 Commitment and the amount of credit it actually uses, determined by
the average of the daily amount of credit outstanding during the specified period. The fee will be calculated at 0.375% per year. 

 This fee is due on May 31, 2009, and on the last day of each following quarter until the expiration of the availability period. 
  

	(b)	Waiver Fee. If the Bank, at its discretion, agrees to waive or amend any terms of this Agreement, the Borrower will, at the Bank’s option, pay the Bank a fee for each
waiver or amendment in an amount advised by the Bank at the time the Borrower requests the waiver or amendment. Nothing in this paragraph shall imply that the Bank is obligated to agree to any waiver or amendment requested by the Borrower. The Bank
may impose additional requirements as a condition to any waiver or amendment. 

  

	(c)	Late Fee. To the extent permitted by law, the Borrower agrees to pay a late fee in an amount not to exceed four percent (4%) of any payment that is more than fifteen
(15) days late. The imposition and payment of a late fee shall not constitute a waiver of the Bank’s rights with respect to the default. 

 4.2 Expenses. The Borrower agrees to immediately repay the Bank for expenses that include, but are not limited to, filing, recording and search fees, appraisal fees, title report fees, and documentation fees. 
 4.3 Reimbursement Costs. 
  

	(a)	The Borrower agrees to reimburse the Bank for any expenses it incurs in the preparation of this Agreement and any agreement or instrument required by this Agreement. Expenses
include, but are not limited to, reasonable attorneys’ fees, including any allocated costs of the Bank’s in-house counsel to the extent permitted by applicable law. 

  

					
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	(b)	The Borrower agrees to reimburse the Bank for the cost of periodic field examinations of the Borrower’s books, records and collateral, and appraisals of the collateral, at such
intervals as the Bank may reasonably require. The actions described in this paragraph may be performed by employees of the Bank or by independent appraisers. 

  

	5.	DISBURSEMENTS, PAYMENTS AND COSTS 

 5.1 Disbursements and Payments.

  

	(a)	Each payment by the Borrower will be made in U.S. Dollars and immediately available funds by debit to a deposit account as described in this Agreement or otherwise authorized by the
Borrower. For payments not made by direct debit, payments will be made by mail to the address shown on the Borrower’s statement or at one of the Bank’s banking centers in the United States, or by such other method as may be permitted by
the Bank. 

  

	(b)	The Bank may honor instructions for advances or repayments given by the Borrower (if an individual), or by any one of the individuals authorized to sign loan agreements on behalf of
the Borrower, or any other individual designated by any one of authorized signers (each an “Authorized Individual”). 

  

	(c)	For any payment under this Agreement made by debit to a deposit account, the Borrower will maintain sufficient immediately available funds in the deposit account to cover each
debit. If there are insufficient immediately available funds in the deposit account on the date the Bank enters such debit authorized by this Agreement, the Bank may reverse the debit. 

  

	(d)	Each disbursement by the Bank and each payment by the Borrower will be evidenced by records kept by the Bank. In addition, the Bank may, at its discretion, require the Borrower to
sign one or more promissory notes. 

  

	(e)	Prior to the date each payment of principal and interest and any fees from the Borrower becomes due (the “Due Date”), the Bank will mail to the Borrower a statement of the
amounts that will be due on that Due Date (the “Billed Amount”). The calculations in the bill will be made on the assumption that no new extensions of credit or payments will be made between the date of the billing statement and the Due
Date, and that there will be no changes in the applicable interest rate. If the Billed Amount differs from the actual amount due on the Due Date (the “Accrued Amount”), the discrepancy will be treated as follows: 

 

	 	(i)	If the Billed Amount is less than the Accrued Amount, the Billed Amount for the following Due Date will be increased by the amount of the discrepancy. The Borrower will not be in
default by reason of any such discrepancy. 

  

	 	(ii)	If the Billed Amount is more than the Accrued Amount, the Billed Amount for the following Due Date will be decreased by the amount of the discrepancy. 

 Regardless of any such discrepancy, interest will continue to accrue based on the actual amount of principal outstanding without compounding. The Bank
will not pay the Borrower interest on any overpayment. 
 5.2 Telephone and Telefax Authorization. 
  

	(a)	The Bank may honor telephone or telefax instructions for advances or repayments or for the designation of optional interest rates given, or purported to be given, by any one of the
Authorized Individuals. 

  

	(b)	Advances will be deposited in and repayments will be withdrawn from account number OR-002801902675 owned by the Borrower or such other of the Borrower’s accounts with the Bank
as designated in writing by the Borrower. 

  

	(c)	The Borrower will indemnify and hold the Bank harmless from all liability, loss, and costs in connection with any act resulting from telephone or telefax instructions the Bank
reasonably believes are made by any Authorized Individual. This paragraph will survive this Agreement’s termination, and will benefit the Bank and its officers, employees, and agents. 

  

					
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 5.3 Direct Debit. 
  

	(a)	The Borrower agrees that on the Due Date the Bank will debit the Billed Amount from deposit account number OR-002801902675 owned by the Borrower or such other of the Borrower’s
accounts with the Bank as designated in writing by the Borrower (the “Designated Account”). 

  

	(b)	The Borrower may terminate this direct debit arrangement at any time by sending written notice to the Bank at the address specified at the end of this Agreement. If the Borrower
terminates this arrangement, then the principal amount outstanding under this Agreement will at the option of the Bank bear interest at a rate per annum which is 0.5 percentage point(s) higher than the rate of interest otherwise provided under this
Agreement. 

 5.4 Banking Days. Unless otherwise provided in this Agreement, a banking day is a day other than a Saturday, Sunday
or other day on which commercial banks are authorized to close, or are in fact closed, in the state where the Bank’s lending office is located, and, if such day relates to amounts bearing interest at an offshore rate (if any), means any such
day on which dealings in dollar deposits are conducted among banks in the offshore dollar interbank market. All payments and disbursements which would be due on a day which is not a banking day will be due on the next banking day. All payments
received on a day which is not a banking day will be applied to the credit on the next banking day. 
 5.5 Interest Calculation. Except as otherwise
stated in this Agreement, all interest and fees, if any, will be computed on the basis of a 360-day year and the actual number of days elapsed. This results in more interest or a higher fee than if a 365-day year is used. Installments of principal
which are not paid when due under this Agreement shall continue to bear interest until paid. 
 5.6 Default Rate. Upon the occurrence of any default
or after maturity or after judgment has been rendered on any obligation under this Agreement, all amounts outstanding under this Agreement, including any interest, fees, or costs which are not paid when due, will at the option of the Bank bear
interest at a rate which is 6.0 percentage point(s) higher than the rate of interest otherwise provided under this Agreement. This may result in compounding of interest. This will not constitute a waiver of any default. 
  

	6.	CONDITIONS 

 Before the Bank is required to extend any credit to the
Borrower under this Agreement, it must receive any documents and other items it may reasonably require, in form and content acceptable to the Bank, including any items specifically listed below. 
 6.1 Authorizations. If the Borrower or any guarantor is anything other than a natural person, evidence that the execution, delivery and performance by the
Borrower and/or such guarantor of this Agreement and any instrument or agreement required under this Agreement have been duly authorized. 
 6.2 Governing
Documents. If required by the Bank, a copy of the Borrower’s organizational documents. 
 6.3 Security Agreements. Signed original security
agreements covering the personal property collateral which the Bank requires. 
 6.4 Perfection and Evidence of Priority. Evidence that the security
interests and liens in favor of the Bank are valid, enforceable, properly perfected in a manner acceptable to the Bank and prior to all others’ rights and interests, except those the Bank consents to in writing. All title documents for motor
vehicles which are part of the collateral must show the Bank’s interest. 
 6.5 Payment of Fees. Payment of all fees and other amounts due and
owing to the Bank, including without limitation payment of all accrued and unpaid expenses incurred by the Bank as required by the paragraph entitled “Reimbursement Costs.” 
 6.6 Good Standing. Certificates of good standing for the Borrower from its state of formation and from any other state in which the Borrower is required to qualify to conduct its business. 
 6.7 Insurance. Evidence of insurance coverage, as required in the “Covenants” section of this Agreement. 
  

					
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	7.	REPRESENTATIONS AND WARRANTIES 

 When the Borrower signs this Agreement,
and until the Bank is repaid in full, the Borrower makes the following representations and warranties. Each request for an extension of credit constitutes a renewal of these representations and warranties as of the date of the request: 

7.1 Formation. If the Borrower is anything other than a natural person, it is duly formed and existing under the laws of the state or other jurisdiction where
organized. 
 7.2 Authorization. This Agreement, and any instrument or agreement required hereunder, are within the Borrower’s powers, have been
duly authorized, and do not conflict with any of its organizational papers. 
 7.3 Enforceable Agreement. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with its terms, and any instrument or agreement required hereunder, when executed and delivered, will be similarly legal, valid, binding and enforceable. 
 7.4 Good Standing. In each state in which the Borrower does business, it is properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes. 
 7.5 No Conflicts. This Agreement does not conflict with any law, agreement, or obligation by which the Borrower is bound.

 7.6 Financial Information. All financial and other information that has been or will be supplied to the Bank is sufficiently complete to give the
Bank accurate knowledge of the Borrower’s (and any guarantor’s) financial condition, including all material contingent liabilities. Since the date of the most recent financial statement provided to the Bank, there has been no material
adverse change in the business condition (financial or otherwise), operations, properties or prospects of the Borrower (or any guarantor). If the Borrower is comprised of the trustees of a trust, the foregoing representations shall also pertain to
the trustor(s) of the trust. 
 7.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or threatened against the Borrower which, if
lost, would impair the Borrower’s financial condition or ability to repay the loan, except as have been disclosed in writing to the Bank. 
 7.8
Collateral. All collateral required in this Agreement is owned by the grantor of the security interest free of any title defects or any liens or interests of others, except those which have been approved by the Bank in writing. 
 7.9 Permits, Franchises. The Borrower possesses all permits, memberships, franchises, contracts and licenses required and all trademark rights, trade name rights,
patent rights, copyrights and fictitious name rights necessary to enable it to conduct the business in which it is now engaged. 
 7.10 Other
Obligations. The Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation, except as have been disclosed in writing to the Bank.

 7.11 Tax Matters. The Borrower has no knowledge of any pending assessments or adjustments of its income tax for any year and all taxes due have
been paid, except as have been disclosed in writing to the Bank. 
 7.12 No Event of Default. There is no event which is, or with notice or lapse of
time or both would be, a default under this Agreement. 
 7.13 Insurance. The Borrower has obtained, and maintained in effect, the insurance coverage
required in the “Covenants” section of this Agreement. 
  

	8.	COVENANTS 

 The Borrower agrees, so long as credit is available under this
Agreement and until the Bank is repaid in full: 
 8.1 Use of Proceeds. 
  

	(a)	To use the proceeds of Facility No. 1 only for working capital. 

  

					
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	(b)	The proceeds of the credit extended under this Loan Agreement may not be used directly or indirectly to purchase or carry any “margin stock” as that term is defined in
Regulation U of the Board of Governors of the Federal Reserve System, or extend credit to or invest in other parties for the purpose of purchasing or carrying any such “margin stock,” or to reduce or retire any indebtedness incurred for
such purpose. 

 8.2 Financial Information. To provide the following financial information and statements in form and content acceptable
to the Bank, and such additional information as requested by the Bank from time to time. The Bank reserves the right, upon written notice to the Borrower, to require the Borrower to deliver financial information and statements to the Bank more
frequently than otherwise provided below, and to use such additional information and statements to measure any applicable financial covenants in this Agreement. 
  

	(a)	Within one hundred fifty (150) days of the fiscal year end, the annual financial statements of the Borrower. These financial statements must be audited (with an opinion
satisfactory to the Bank) by a Certified Public Accountant acceptable to the Bank. The statements shall be prepared on a consolidated basis. 

  

	(b)	For the months of February, August and November, copies of the Form 10-Q Report for the Borrower within forty five (45) days after the date of filing with the Securities and
Exchange Commission. 

  

	(c)	Copies of the Form 10-K Annual Report for the Borrower within one hundred fifty (150) days after the date of filing with the Securities and Exchange Commission.

 8.3 Bank as Principal Depository. To maintain the Bank as its principal depository bank, including for the maintenance of business,
cash management, operating and administrative deposit accounts. 
 8.4 Other Debts. Not to have outstanding or incur any direct or contingent
liabilities or lease obligations (other than those to the Bank), or become liable for the liabilities of others, without the Bank’s written consent. This does not prohibit: 
  

	(a)	Acquiring goods, supplies, or merchandise on normal trade credit. 

  

	(b)	Endorsing negotiable instruments received in the usual course of business. 

  

	(c)	Obtaining surety bonds in the usual course of business. (d) Liabilities, lines of credit and leases in existence on the date of this Agreement disclosed in writing to the Bank.

 8.5 Other Liens. Not to create, assume, or allow any security interest or lien (including judicial liens) on property the Borrower
now or later owns, except: 
  

	(a)	Liens and security interests in favor of the Bank. 

  

	(b)	Liens for taxes not yet due. 

  

	(c)	Liens outstanding on the date of this Agreement disclosed in writing to the Bank. 

 8.6 Maintenance of Assets. 
  

	(a)	Not to sell, assign, lease, transfer or otherwise dispose of any part of the Borrower’s business or the Borrower’s assets except in the ordinary course of the
Borrower’s business. 

  

	(b)	Not to sell, assign, lease, transfer or otherwise dispose of any assets for less than fair market value, or enter into any agreement to do so. 

  

	(c)	Not to enter into any sale and leaseback agreement covering any of its fixed assets. 

  

	(d)	To maintain and preserve all rights, privileges, and franchises the Borrower now has. 

  

	(e)	To make any repairs, renewals, or replacements to keep the Borrower’s properties in good working condition. 

  

					
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 8.7 Investments. Not to have any existing, or make any new, investments in any individual or entity, or make any
capital contributions or other transfers of assets to any individual or entity, except for: 
  

	(a)	Existing investments disclosed to the Bank in writing. 

  

	(b)	Investments in the Borrower’s current subsidiaries. 

  

	(c)	Investments in any of the following: 

  

	 	(i)	certificates of deposit; 

  

	 	(ii)	U.S. treasury bills and other obligations of the federal government; 

  

	 	(iii)	readily marketable securities (including commercial paper, but excluding restricted stock and stock subject to the provisions of Rule 144 of the Securities and Exchange Commission).

 8.8 Loans. Not to make any loans, advances or other extensions of credit to any individual or entity, except for: 
  

	(a)	Existing extensions of credit disclosed to the Bank in writing. 

  

	(b)	Extensions of credit to the Borrower’s current subsidiaries. 

  

	(c)	Extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business to
non-affiliated entities. 

 8.9 Change of Management. Not to make any substantial change in the present executive or management
personnel of the Borrower. 
 8.10 Change of Ownership. Not to cause, permit, or suffer any change in capital ownership such that there is a change of
more than twenty-five percent (25%) in the direct or indirect capital ownership of the Borrower. 
 8.11 Additional Negative Covenants. Not to,
without the Bank’s written consent: 
  

	(a)	Enter into any consolidation, merger, or other combination, or become a partner in a partnership, a member of a joint venture, or a member of a limited liability company.

  

	(b)	Acquire or purchase a business or its assets. 

  

	(c)	Engage in any business activities substantially different from the Borrower’s present business. 

  

	(d)	Liquidate or dissolve the Borrower’s business. 

 8.12 Notices to
Bank. To promptly notify the Bank in writing of: 
  

	(a)	Any lawsuit over Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) against the Borrower or any Obligor. 

  

	(b)	Any substantial dispute between any governmental authority and the Borrower or any Obligor. 

  

	(c)	Any event of default under this Agreement, or any event which, with notice or lapse of time or both, would constitute an event of default. 

  

	(d)	Any material adverse change in the Borrower’s Obligor’s business condition (financial or otherwise), operations, properties or prospects, or ability to repay the credit.

  

	(e)	Any change in the Borrower’s or any Obligor’s name, legal structure, principal residence (for an individual), state of registration (for a registered entity), place of
business, or chief executive office if the Borrower or any Obligor has more than one place of business. 

  

					
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	(f)	Any actual contingent liabilities of the Borrower or any Obligor, and any such contingent liabilities which are reasonably foreseeable. 

 For purposes of this Agreement, “Obligor” shall mean any guarantor, or any party pledging collateral to the Bank, or, if the Borrower is comprised of the
trustees of a trust, any trustor. 
 8.13 Insurance. 
  

	(a)	General Business Insurance. To maintain insurance satisfactory to the Bank as to amount, nature and carrier covering property damage (including loss of use and occupancy) to
any of the Borrower’s properties, business interruption insurance, public liability insurance including coverage for contractual liability, product liability and workers’ compensation, and any other insurance which is usual for the
Borrower’s business. Each policy shall provide for at least 30 days prior notice to the Bank of any cancellation thereof. 

  

	(b)	Insurance Covering Collateral. To maintain all risk property damage insurance policies (including without limitation windstorm coverage, and hurricane coverage as applicable)
covering the tangible property comprising the collateral. Each insurance policy must be for the full replacement cost of the collateral and include a replacement cost endorsement. The insurance must be issued by an insurance company acceptable to
the Bank and must include a lender’s loss payable endorsement in favor of the Bank in a form acceptable to the Bank. 

  

	(c)	Evidence of Insurance. Upon the request of the Bank, to deliver to the Bank a copy of each insurance policy, or, if permitted by the Bank, a certificate of insurance listing
all insurance in force. 

 8.14 Compliance with Laws. To comply with the laws (including any fictitious or trade name statute),
regulations, and orders of any government body with authority over the Borrower’s business. The Bank shall have no obligation to make any advance to the Borrower except in compliance with all applicable laws and regulations and the Borrower
shall fully cooperate with the Bank in complying with all such applicable laws and regulations. 
 8.15 ERISA Plans. Promptly during each year, to pay
and cause any subsidiaries to pay contributions adequate to meet at least the minimum funding standards under ERISA with respect to each and every Plan; file each annual report required to be filed pursuant to ERISA in connection with each Plan for
each year; and notify the Bank within ten (10) days of the occurrence of any Reportable Event that might constitute grounds for termination of any capital Plan by the Pension Benefit Guaranty Corporation or for the appointment by the
appropriate United States District Court of a trustee to administer any Plan. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time. Capitalized terms in this paragraph shall have the meanings
defined within ERISA. 
 8.16 Books and Records. To maintain adequate books and records. 
 8.17 Audits. To allow the Bank and its agents to inspect the Borrower’s properties and examine, audit, and make copies of books and records at any reasonable
time. If any of the Borrower’s properties, books or records are in the possession of a third party, the Borrower authorizes that third party to permit the Bank or its agents to have access to perform inspections or audits and to respond to the
Bank’s requests for information concerning such properties, books and records. 
 8.18 Perfection of Liens. To help the Bank perfect and protect
its security interests and liens, and reimburse it for related costs it incurs to protect its security interests and liens. 
 8.19 Cooperation. To
take any action reasonably requested by the Bank to carry out the intent of this Agreement. 
  

	9.	DEFAULT AND REMEDIES 

 If any of the following events of default occurs,
the Bank may do one or more of the following: declare the Borrower in default, stop making any additional credit available to the Borrower, and require the Borrower to repay its entire debt immediately and without prior notice. If an event which,
with notice or the passage of time, will constitute an event of default has occurred and is continuing, the Bank has no obligation to make advances or extend additional credit under this Agreement. In addition, if any event of default occurs, the
Bank shall have all rights, powers and remedies available under any instruments and agreements required by or executed in connection with this Agreement, as well as all rights and remedies available at law or in equity. If an event of default occurs
under the paragraph entitled “Bankruptcy,” below, with respect to the Borrower, then the entire debt outstanding under this Agreement will automatically be due immediately. 
  

					
		  	- 9 -	  	
		  		  	

 9.1 Failure to Pay. The Borrower fails to make a payment under this Agreement when due. 
 9.2 Other Bank Agreements. Any default occurs under any other agreement the Borrower (or any Obligor) or any of the Borrower’s related entities or affiliates
has with the Bank or any affiliate of the Bank. 
 9.3 Cross-default. Any default occurs under any agreement in connection with any credit the
Borrower (or any Obligor) or any of the Borrower’s related entities or affiliates has obtained from anyone else or which the Borrower (or any Obligor) or any of the Borrower’s related entities or affiliates has guaranteed. 
 9.4 False Information. The Borrower or any Obligor has given the Bank false or misleading information or representations. 
 9.5 Bankruptcy. The Borrower, any Obligor, or any general partner of the Borrower or of any Obligor files a bankruptcy petition, a bankruptcy petition is filed
against any of the foregoing parties, or the Borrower, any Obligor, or any general partner of the Borrower or of any Obligor makes a general assignment for the benefit of creditors. 
 9.6 Receivers. A receiver or similar official is appointed for a substantial portion of the Borrower’s or any Obligor’s business, or the business is terminated, or, if any Obligor is anything other
than a natural person, such Obligor is liquidated or dissolved. 
 9.7 Lien Priority. The Bank fails to have an enforceable first lien (except for any
prior liens to which the Bank has consented in writing) on or security interest in any property given as security for this Agreement (or any guaranty). 
 9.8 Judgments. Any judgments or arbitration awards are entered against the Borrower or any Obligor, or the Borrower or any Obligor enters into any settlement agreements with respect to any litigation or arbitration, in an aggregate
amount of Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) or more in excess of any insurance coverage. 
 9.9 Material Adverse Change. A
material adverse change occurs, or is reasonably likely to occur, in the Borrower’s (or any Obligor’s) business condition (financial or otherwise), operations, properties or prospects, or ability to repay the credit; or the Bank determines
that it is insecure for any other reason. 
 9.10 Government Action. Any government authority takes action that the Bank believes materially adversely
affects the Borrower’s or any Obligor’s financial condition or ability to repay. 
 9.11 Default under Related Documents. Any default occurs
under any guaranty, subordination agreement, security agreement, deed of trust, mortgage, or other document required by or delivered in connection with this Agreement or any such document is no longer in effect, or any guarantor purports to revoke
or disavow the guaranty. 
 9.12 ERISA Plans. Any one or more of the following events occurs with respect to a Plan of the Borrower subject to Title
IV of ERISA, provided such event or events could reasonably be expected, in the judgment of the Bank, to subject the Borrower to any tax, penalty or liability (or any combination of the foregoing) which, in the aggregate, could have a material
adverse effect on the financial condition of the Borrower: 
  

	(a)	A reportable event shall occur under Section 4043(c) of ERISA with respect to a Plan. 

  

	(b)	Any Plan termination (or commencement of proceedings to terminate a Plan) or the full or partial withdrawal from a Plan by the Borrower or any ERISA Affiliate.

 9.13 Other Breach Under Agreement. A default occurs under any other term or condition of this Agreement not specifically referred to
in this Article. This includes any failure or anticipated failure by the Borrower (or any other party named in the Covenants section) to comply with the financial covenants set forth in this Agreement, whether such failure is evidenced by financial
statements delivered to the Bank or is otherwise known to the Borrower or the Bank. 
  

					
		  	- 10 -	  	
		  		  	

	10.	ENFORCING THIS AGREEMENT; MISCELLANEOUS 

 10.1 GAAP. Except as
otherwise stated in this Agreement, all financial information provided to the Bank and all financial covenants will be made under generally accepted accounting principles, consistently applied. 
 10.2 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of Oregon. To the extent that the Bank has greater rights or
remedies under federal law, whether as a national bank or otherwise, this paragraph shall not be deemed to deprive the Bank of such rights and remedies as may be available under federal law. 
 10.3 Successors and Assigns. This Agreement is binding on the Borrower’s and the Bank’s successors and assignees. The Borrower agrees that it may not
assign this Agreement without the Bank’s prior consent. The Bank may sell participations in or assign this loan, and may exchange information about the Borrower (including, without limitation, any information regarding any hazardous substances)
with actual or potential participants or assignees. If a participation is sold or the loan is assigned, the purchaser will have the right of set-off against the Borrower. 
 10.4 Dispute Resolution Provision. This paragraph, including the subparagraphs below, is referred to as the “Dispute Resolution Provision.” This Dispute Resolution Provision is a material inducement
for the parties entering into this agreement. 
  

	(a)	This Dispute Resolution Provision concerns the resolution of any controversies or claims between the parties, whether arising in contract, tort or by statute, including but not
limited to controversies or claims that arise out of or relate to: (i) this agreement (including any renewals, extensions or modifications); or (ii) any document related to this agreement (collectively a “Claim”). For the
purposes of this Dispute Resolution Provision only, the term “parties” shall include any parent corporation, subsidiary or affiliate of the Bank involved in the servicing, management or administration of any obligation described or
evidenced by this agreement. 

  

	(b)	At the request of any party to this agreement, any Claim shall be resolved by binding arbitration in accordance with the Federal Arbitration Act (Title 9, U.S. Code) (the
“Act”). The Act will apply even though this agreement provides that it is governed by the law of a specified state. 

  

	(c)	Arbitration proceedings will be determined in accordance with the Act, the then-current rules and procedures for the arbitration of financial services disputes of the American
Arbitration Association or any successor thereof (“AAA”), and the terms of this Dispute Resolution Provision. In the event of any inconsistency, the terms of this Dispute Resolution Provision shall control. If AAA is unwilling or unable to
(i) serve as the provider of arbitration or (ii) enforce any provision of this arbitration clause, the Bank may designate another arbitration organization with similar procedures to serve as the provider of arbitration.

  

	(d)	The arbitration shall be administered by AAA and conducted, unless otherwise required by law, in any U.S. state where real or tangible personal property collateral for this credit
is located or if there is no such collateral, in the state specified in the governing law section of this agreement. All Claims shall be determined by one arbitrator; however, if Claims exceed Five Million Dollars ($5,000,000), upon the request of
any party, the Claims shall be decided by three arbitrators. All arbitration hearings shall commence within ninety (90) days of the demand for arbitration and close within ninety (90) days of commencement and the award of the arbitrator(s)
shall be issued within thirty (30) days of the close of the hearing. However, the arbitrator(s), upon a showing of good cause, may extend the commencement of the hearing for up to an additional sixty (60) days. The arbitrator(s) shall
provide a concise written statement of reasons for the award. The arbitration award may be submitted to any court having jurisdiction to be confirmed and have judgment entered and enforced. 

  

	(e)	The arbitrator(s) will give effect to statutes of limitation in determining any Claim and may dismiss the arbitration on the basis that the Claim is barred. For purposes of the
application of any statutes of limitation, the service on AAA under applicable AAA rules of a notice of Claim is the equivalent of the filing of a lawsuit. Any dispute concerning this arbitration provision or whether a Claim is arbitrable shall be
determined by the arbitrator(s), except as set forth at subparagraph (h) of this Dispute Resolution Provision. The arbitrator(s) shall have the power to award legal fees pursuant to the terms of this agreement. 

  

	(f)	This paragraph does not limit the right of any party to: (i) exercise self-help remedies, such as but not limited to, setoff; (ii) initiate judicial or non-judicial
foreclosure against any real or personal property collateral; (iii) exercise any judicial or power of sale rights, or (iv) act in a court of law to obtain an interim remedy, such as but not limited to, injunctive relief, writ of possession
or appointment of a receiver, or additional or supplementary remedies. 

  

					
		  	- 11 -	  	
		  		  	

	(g)	The filing of a court action is not intended to constitute a waiver of the right of any party, including the suing party, thereafter to require submittal of the Claim to
arbitration. 

  

	(h)	Any arbitration or trial by a judge of any Claim will take place on an individual basis without resort to any form of class or representative action (the “Class Action
Waiver”). Regardless of anything else in this Dispute Resolution Provision, the validity and effect of the Class Action Waiver may be determined only by a court and not by an arbitrator. The parties to this Agreement acknowledge that the Class
Action Waiver is material and essential to the arbitration of any disputes between the parties and is nonseverable from the agreement to arbitrate Claims. If the Class Action Waiver is limited, voided or found unenforceable, then the parties’
agreement to arbitrate shall be null and void with respect to such proceeding, subject to the right to appeal the limitation or invalidation of the Class Action Waiver. The Parties acknowledge and agree that under no circumstances will a class
action be arbitrated. 

 10.5 Severability; Waivers. If any part of this Agreement is not enforceable, the rest of the Agreement may
be enforced. The Bank retains all rights, even if it makes a loan after default. If the Bank waives a default, it may enforce a later default. Any consent or waiver under this Agreement must be in writing. 
 10.6 Attorneys’ Fees. The Borrower shall reimburse the Bank for any reasonable costs and attorneys’ fees incurred by the Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and any other documents executed in connection with this Agreement, and in connection with any amendment, waiver, “workout” or restructuring under this Agreement.
In the event of a lawsuit or arbitration proceeding, the prevailing party is entitled to recover costs and reasonable attorneys’ fees incurred in connection with the lawsuit or arbitration proceeding, as determined by the court or arbitrator.
In the event that any case is commenced by or against the Borrower under the Bankruptcy Code (Title 11, United States Code) or any similar or successor statute, the Bank is entitled to recover costs and reasonable attorneys’ fees incurred by
the Bank related to the preservation, protection, or enforcement of any rights of the Bank in such a case. As used in this paragraph, “attorneys’ fees” includes the allocated costs of the Bank’s in-house counsel. 
 10.7 Set-Off. 
  

	(a)	In addition to any rights and remedies of the Bank provided by law, upon the occurrence and during the continuance of any event of default under this Agreement, the Bank is
authorized, at any time, to set off and apply any and all Deposits of the Borrower or any Obligor held by the Bank against any and all Obligations owing to the Bank. The set-off may be made irrespective of whether or not the Bank shall have made
demand under this Agreement or any guaranty, and although such Obligations may be contingent or unmatured or denominated in a currency different from that of the applicable Deposits. 

  

	(b)	The set-off may be made without prior notice to the Borrower or any other party, any such notice being waived by the Borrower (on its own behalf and on behalf of each Obligor) to
the fullest extent permitted by law. The Bank agrees promptly to notify the Borrower after any such set-off and application; provided, however, that the failure to give such notice shall not affect the validity of such set-off and
application. 

  

	(c)	For the purposes of this paragraph, “Deposits” means any deposits (general or special, time or demand, provisional or final, individual or joint) and any instruments owned
by the Borrower or any Obligor which come into the possession or custody or under the control of the Bank. “Obligations” means all obligations, now or hereafter existing, of the Borrower to the Bank under this Agreement and under any other
agreement or instrument executed in connection with this Agreement, and the obligations to the Bank of any Obligor. 

 10.8 One
Agreement. This Agreement and any related security or other agreements required by this Agreement, collectively: 
  

	(a)	represent the sum of the understandings and agreements between the Bank and the Borrower concerning this credit; 

  

	(b)	replace any prior oral or written agreements between the Bank and the Borrower concerning this credit; and 

  

	(c)	are intended by the Bank and the Borrower as the final, complete and exclusive statement of the terms agreed to by them. 

  

					
		  	- 12 -	  	
		  		  	

 In the event of any conflict between this Agreement and any other agreements required by this Agreement, this Agreement
will prevail. Any reference in any related document to a “promissory note” or a “note” executed by the Borrower and dated as of the date of this Agreement shall be deemed to refer to this Agreement, as now in effect or as
hereafter amended, renewed, or restated. 
 10.9 Indemnification. The Borrower will indemnify and hold the Bank harmless from any loss, liability,
damages, judgments, and costs of any kind relating to or arising directly or indirectly out of (a) this Agreement or any document required hereunder, (b) any credit extended or committed by the Bank to the Borrower hereunder, and
(c) any litigation or proceeding related to or arising out of this Agreement, any such document, or any such credit. This indemnity includes but is not limited to attorneys’ fees (including the allocated cost of in-house counsel). This
indemnity extends to the Bank, its parent, subsidiaries and all of their directors, officers, employees, agents, successors, attorneys, and assigns. This indemnity will survive repayment of the Borrower’s obligations to the Bank. All sums due
to the Bank hereunder shall be obligations of the Borrower, due and payable immediately without demand. 
 10.10 Notices. Unless otherwise provided in
this Agreement or in another agreement between the Bank and the Borrower, all notices required under this Agreement shall be personally delivered or sent by first class mail, postage prepaid, or by overnight courier, to the addresses on the
signature page of this Agreement, or sent by facsimile to the fax numbers listed on the signature page, or to such other addresses as the Bank and the Borrower may specify from time to time in writing. Notices and other communications shall be
effective (i) if mailed, upon the earlier of receipt or five (5) days after deposit in the U.S. mail, first class, postage prepaid, (ii) if telecopied, when transmitted, or (iii) if hand-delivered, by courier or otherwise
(including telegram, lettergram or mailgram), when delivered. 
 10.11 Headings. Article and paragraph headings are for reference only and shall not
affect the interpretation or meaning of any provisions of this Agreement. 
 10.12 Counterparts. This Agreement may be executed in as many
counterparts as necessary or convenient, and by the different parties on separate counterparts each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same agreement. 
 10.13 Borrower Information; Reporting to Credit Bureaus. The Borrower authorizes the Bank at any time to verify or check any information given by the Borrower to
the Bank, check the Borrower’s credit references, verify employment, and obtain credit reports. The Borrower agrees that the Bank shall have the right at all times to disclose and report to credit reporting agencies and credit rating agencies
such information pertaining to the Borrower and/or all guarantors as is consistent with the Bank’s policies and practices from time to time in effect. 
 10.14 Prior Agreement Superseded. This Agreement supersedes the Business Loan Agreement and the Promissory Note entered into as of May 12, 2005, between the Bank and the Borrower, and any credit outstanding thereunder shall be
deemed to be outstanding under this Agreement. 
  

					
		  	- 13 -	  	
		  		  	

 This Agreement is executed as of the date stated at the top of the first page. 
  

									
	Borrower:	 		 	Bank:
			
	Schmitt Industries, Inc.	 		 	Bank of America, N.A.
					
	By:	 	 	 		 	By:	 	 
	Name:	 		 		 		 	Authorized Signer
	Title:	 		 		 		 	
					
	By:	 	 	 		 		 	
	Name:	 		 		 		 	
	Title:	 		 		 		 	
			
	Address where notices to Schmitt Industries, Inc. are to be sent:	 		 	Address where notices to the Bank are to be sent:
			
	 2765 Northwest Nicolai Street
 Portland, OR
97210
	 		 	 Bank of America, N.A.
 Global Product
Solutions
 1075 Main Street, 2nd Floor
 Waltham, MA
02451

					
			
	Telephone:	 	______________	  	Facsimile: (866) 495-4535
	Facsimile:	 	______________	  	

 Federal law requires Bank of America, N.A. (the “Bank”) to provide the following notice. The
notice is not part of the foregoing agreement or instrument and may not be altered. Please read the notice carefully. 
  

	(1)	USA PATRIOT ACT NOTICE 

 Federal law requires all financial
institutions to obtain, verify and record information that identifies each person who opens an account or obtains a loan. The Bank will ask for the Borrower’s legal name, address, tax ID number or social security number and other identifying
information. The Bank may also ask for additional information or documentation or take other actions reasonably necessary to verify the identity of the Borrower, guarantors or other related persons. 
  

					
		  	- 14 -Security Agreement between Schmitt Industries, Inc. and Bank of America, N.A.

 Exhibit 10.2 
  

			
	

	  	

 SECURITY AGREEMENT 
 (Multiple Use) 
 1. THE SECURITY. The undersigned Schmitt Industries, Inc. (the
“Pledgor”) hereby assigns and grants to Bank of America, N.A. (the “Bank”) a security interest in the following described property now owned or hereafter acquired by the Pledgor (“Collateral”): 
 (a) All accounts, contract rights, chattel paper, instruments, deposit accounts, letter of credit rights, payment intangibles and general
intangibles, including all amounts due to the Pledgor from a factor; rights to payment of money from the Bank under any Swap Contract (as defined in Paragraph 2 below); and all returned or repossessed goods which, on sale or lease, resulted in an
account or chattel paper. 
 (b) All inventory, including all materials, work in process and finished goods. 
 (c) All negotiable and nonnegotiable documents of title covering any Collateral. 
 (d) All accessions, attachments and other additions to the Collateral, and all tools, parts and equipment used in connection with the
Collateral. 
 (e) All substitutes or replacements for any Collateral, all cash or non-cash proceeds, product, rents and
profits of any Collateral, all income, benefits and property receivable on account of the Collateral, all rights under warranties and insurance contracts, letters of credit, guaranties or other supporting obligations covering the Collateral, and any
causes of action relating to the Collateral. 
 (f) All books and records pertaining to any Collateral, including but not
limited to any computer-readable memory and any computer hardware or software necessary to process such memory (“Books and Records”). 
 2. THE INDEBTEDNESS. The Collateral secures and will secure all Indebtedness of the Pledgor to the Bank. Each party obligated under any Indebtedness is referred to in this Agreement as a “Debtor.” “Indebtedness” means
all debts, obligations or liabilities now or hereafter existing, absolute or contingent of the Debtor or any one or more of them to the Bank, whether voluntary or involuntary, whether due or not due, or whether incurred directly or indirectly or
acquired by the Bank by assignment or otherwise. Indebtedness shall include, without limitation, all obligations of the Debtor arising under any Swap Contract. “Swap Contract” means any interest rate, credit, commodity or equity swap, cap,
floor, collar, forward foreign exchange transaction, currency swap, cross currency rate swap, currency option, securities puts, calls, collars, options or forwards or any combination of, or option with respect to, these or similar transactions now
or hereafter entered into between the Debtor and the Bank. 
 3. PLEDGOR’S COVENANTS. The Pledgor represents, covenants and warrants
that unless compliance is waived by the Bank in writing: 
 (a) The Pledgor will properly preserve the Collateral; defend the
Collateral against any adverse claims and demands; and keep accurate Books and Records. 
  

					
		  	- 1 -	  	
		  		  	

 (b) The Pledgor resides (if the Pledgor is an individual), or the Pledgor’s chief
executive office (if the Pledgor is not an individual) is located, in the state specified on the signature page hereof. In addition, the Pledgor (if not an individual or other unregistered entity), is incorporated in or organized under the laws of
the state specified on such signature page. The Pledgor shall give the Bank at least thirty (30) days notice before changing its residence or its chief executive office or state of incorporation or organization. The Pledgor will notify the Bank
in writing prior to any change in the location of any Collateral, including the Books and Records. 
 (c) The Pledgor will
notify the Bank in writing prior to any change in the Pledgor’s name, identity or business structure. 
 (d) Unless
otherwise agreed, the Pledgor has not granted and will not grant any security interest in any of the Collateral except to the Bank, and will keep the Collateral free of all liens, claims, security interests and encumbrances of any kind or nature
except the security interest of the Bank. 
 (e) The Pledgor will promptly notify the Bank in writing of any event which
affects the value of the Collateral, the ability of the Pledgor or the Bank to dispose of the Collateral, or the rights and remedies of the Bank in relation thereto, including, but not limited to, the levy of any legal process against any Collateral
and the adoption of any marketing order, arrangement or procedure affecting the Collateral, whether governmental or otherwise. 
 (f) The Pledgor shall pay all costs necessary to preserve, defend, enforce and collect the Collateral, including but not limited to taxes, assessments, insurance premiums, repairs, rent, storage costs and expenses of sales, and any costs to
perfect the Bank’s security interest (collectively, the “Collateral Costs”). Without waiving the Pledgor’s default for failure to make any such payment, the Bank at its option may pay any such Collateral Costs, and discharge
encumbrances on the Collateral, and such Collateral Costs payments shall be a part of the Indebtedness and bear interest at the rate set out in the Indebtedness. The Pledgor agrees to reimburse the Bank on demand for any Collateral Costs so
incurred. 
 (g) Until the Bank exercises its rights to make collection, the Pledgor will diligently collect all Collateral.

 (h) If any Collateral is or becomes the subject of any registration certificate, certificate of deposit or negotiable
document of title, including any warehouse receipt or bill of lading, the Pledgor shall immediately deliver such document to the Bank, together with any necessary endorsements. 
 (i) The Pledgor will not sell, lease, agree to sell or lease, or otherwise dispose of any Collateral except with the prior written consent
of the Bank; provided, however, that the Pledgor may sell inventory in the ordinary course of business. 
 (j) The Pledgor
will maintain and keep in force insurance covering the Collateral against fire and extended coverages (including without limitation windstorm coverage, and hurricane coverage as applicable), to the extent that any Collateral is of a type which can
be so insured. Such insurance shall require losses to be paid on a replacement cost basis, be issued by insurance companies acceptable to the Bank and include a loss payable endorsement in favor of the Bank in a form acceptable to the Bank. Upon the
request of the Bank, the Pledgor will deliver to the bank a copy of each insurance policy, or, if permitted by the Bank, a certificate of insurance listing all insurance in force. 
 4. ADDITIONAL OPTIONAL REQUIREMENTS. The Pledgor agrees that the Bank may at its option at any time, whether or not the Pledgor is in default:

 (a) Require the Pledgor to deliver to the Bank (i) copies of or extracts from the Books and Records, and
(ii) information on any contracts or other matters affecting the Collateral. 
  

					
		  	- 2 -	  	
		  		  	

 (b) Examine the Collateral, including the Books and Records, and make copies of or
extracts from the Books and Records, and for such purposes enter at any reasonable time upon the property where any Collateral or any Books and Records are located. 
 (c) Require the Pledgor to deliver to the Bank any instruments, chattel paper or letters of credit which are part of the Collateral, and
to assign to the Bank the proceeds of any such letters of credit. 
 (d) Notify any account debtors, any buyers of the
Collateral, or any other persons of the Bank’s interest in the Collateral. 
 5. DEFAULTS. Any one or more of the following shall be a
default hereunder: 
 (a) Any Indebtedness is not paid when due, or any default occurs under any agreement relating to the
Indebtedness, after giving effect to any applicable grace or cure periods. 
 (b) The Pledgor breaches any term, provision,
warranty or representation under this Agreement, or under any other obligation of the Pledgor to the Bank, and such breach remains uncured after any applicable cure period. 
 (c) The Bank fails to have an enforceable first lien (except for any prior liens to which the Bank has consented in writing) on or
security interest in the Collateral. 
 (d) Any custodian, receiver or trustee is appointed to take possession, custody or
control of all or a substantial portion of the property of the Pledgor or of any guarantor or other party obligated under any Indebtedness. 
 (e) The Pledgor or any guarantor or other party obligated under any Indebtedness becomes insolvent, or is generally not paying or admits in writing its inability to pay its debts as they become due, fails in business,
makes a general assignment for the benefit of creditors, dies, or commences any case, proceeding or other action under any bankruptcy or other law for the relief of, or relating to, debtors. 
 (f) Any case, proceeding or other action is commenced against the Pledgor or any guarantor or other party obligated under any Indebtedness
under any bankruptcy or other law for the relief of, or relating to, debtors. 
 (g) Any involuntary lien of any kind or
character attaches to any Collateral, except for liens for taxes not yet due. 
 (h) The Pledgor has given the Bank any false
or misleading information or representations. 
 6. BANK’S REMEDIES AFTER DEFAULT. In the event of any default, the Bank may do any one
or more of the following, to the extent permitted by law: 
 (a) Declare any Indebtedness immediately due and payable, without
notice or demand. 
 (b) Enforce the security interest given hereunder pursuant to the Uniform Commercial Code and any other
applicable law. 
 (c) Enforce the security interest of the Bank in any deposit account of the Pledgor maintained with the
Bank by applying such account to the Indebtedness. 
 (d) Require the Pledgor to obtain the Bank’s prior written consent
to any sale, lease, agreement to sell or lease, or other disposition of any Collateral consisting of inventory. 
  

					
		  	- 3 -	  	
		  		  	

 (e) Require the Pledgor to segregate all collections and proceeds of the Collateral so
that they are capable of identification and deliver daily such collections and proceeds to the Bank in kind. 
 (f) Require
the Pledgor to direct all account debtors to forward all payments and proceeds of the Collateral to a post office box under the Bank’s exclusive control. 
 (g) Require the Pledgor to assemble the Collateral, including the Books and Records, and make them available to the Bank at a place
designated by the Bank. 
 (h) Enter upon the property where any Collateral, including any Books and Records, are located and
take possession of such Collateral and such Books and Records, and use such property (including any buildings and facilities) and any of the Pledgor’s equipment, if the Bank deems such use necessary or advisable in order to take possession of,
hold, preserve, process, assemble, prepare for sale or lease, market for sale or lease, sell or lease, or otherwise dispose of, any Collateral. 
 (i) Demand and collect any payments on and proceeds of the Collateral. In connection therewith the Pledgor irrevocably authorizes the Bank to endorse or sign the Pledgor’s name on all checks, drafts, collections,
receipts and other documents, and to take possession of and open the mail addressed to the Pledgor and remove therefrom any payments and proceeds of the Collateral. 
 (j) Grant extensions and compromise or settle claims with respect to the Collateral for less than face value, all without prior notice to
the Pledgor. 
 (k) Use or transfer any of the Pledgor’s rights and interests in any Intellectual Property now owned or
hereafter acquired by the Pledgor, if the Bank deems such use or transfer necessary or advisable in order to take possession of, hold, preserve, process, assemble, prepare for sale or lease, market for sale or lease, sell or lease, or otherwise
dispose of, any Collateral. The Pledgor agrees that any such use or transfer shall be without any additional consideration to the Pledgor. As used in this paragraph, “Intellectual Property” includes, but is not limited to, all trade
secrets, computer software, service marks, trademarks, trade names, trade styles, copyrights, patents, applications for any of the foregoing, customer lists, working drawings, instructional manuals, and rights in processes for technical
manufacturing, packaging and labeling, in which the Pledgor has any right or interest, whether by ownership, license, contract or otherwise. 
 (l) Have a receiver appointed by any court of competent jurisdiction to take possession of the Collateral. The Pledgor hereby consents to the appointment of such a receiver and agrees not to oppose any such
appointment. 
 (m) Take such measures as the Bank may deem necessary or advisable to take possession of, hold, preserve,
process, assemble, insure, prepare for sale or lease, market for sale or lease, sell or lease, or otherwise dispose of, any Collateral, and the Pledgor hereby irrevocably constitutes and appoints the Bank as the Pledgor’s attorney-in-fact to
perform all acts and execute all documents in connection therewith. 
 (n) Without notice or demand to the Pledgor, set off
and apply against any and all of the Indebtedness any and all deposits (general or special, time or demand, provisional or final) and any other indebtedness, at any time held or owing by the Bank or any of the Bank’s agents or affiliates to or
for the credit of the account of the Pledgor or any guarantor or endorser of the Pledgor’s Indebtedness. 
 (o) Exercise
any other remedies available to the Bank at law or in equity. 
 7. MISCELLANEOUS. 
 (a) Any waiver, express or implied, of any provision hereunder and any delay or failure by the Bank to enforce any provision shall not
preclude the Bank from enforcing any such provision thereafter. 
  

					
		  	- 4 -	  	
		  		  	

 (b) The Pledgor shall, at the request of the Bank, execute such other agreements,
documents, instruments, or financing statements in connection with this Agreement as the Bank may reasonably deem necessary. 
 (c) All notes, security agreements, subordination agreements and other documents executed by the Pledgor or furnished to the Bank in connection with this Agreement must be in form and substance satisfactory to the Bank. 
 (d) This Agreement shall be governed by and construed in accordance with the laws of the State of Oregon. To the extent that the Bank has
greater rights or remedies under federal law, whether as a national bank or otherwise, this paragraph shall not be deemed to deprive the Bank of such rights and remedies as may be available under federal law. Jurisdiction and venue for any action or
proceeding to enforce this Agreement shall be the forum appropriate for such action or proceeding against the Debtor, to which jurisdiction the Pledgor irrevocably submits and to which venue the Pledgor waives to the fullest extent permitted by law
any defense asserting an inconvenient forum in connection therewith. 
 (e) All rights and remedies herein provided are
cumulative and not exclusive of any rights or remedies otherwise provided by law. Any single or partial exercise of any right or remedy shall not preclude the further exercise thereof or the exercise of any other right or remedy. 
 (f) All terms not defined herein are used as set forth in the Uniform Commercial Code. 
 (g) In the event of any action by the Bank to enforce this Agreement or to protect the security interest of the Bank in the Collateral, or
to take possession of, hold, preserve, process, assemble, insure, prepare for sale or lease, market for sale or lease, sell or lease, or otherwise dispose of, any Collateral, the Pledgor agrees to pay immediately the costs and expenses thereof,
together with reasonable attorneys’ fees and allocated costs for in-house legal services to the extent permitted by law. 
 (h) In the event the Bank seeks to take possession of any or all of the Collateral by judicial process, the Pledgor hereby irrevocably waives any bonds and any surety or security relating thereto that may be required by applicable law as an
incident to such possession, and waives any demand for possession prior to the commencement of any such suit or action. 
 (i)
This Agreement shall constitute a continuing agreement, applying to all future as well as existing transactions, whether or not of the character contemplated at the date of this Agreement, and if all transactions between the Bank and the Pledgor
shall be closed at any time, shall be equally applicable to any new transactions thereafter. 
 (j) The Bank’s rights
hereunder shall inure to the benefit of its successors and assigns. In the event of any assignment or transfer by the Bank of any of the Indebtedness or the Collateral, the Bank thereafter shall be fully discharged from any responsibility with
respect to the Collateral so assigned or transferred, but the Bank shall retain all rights and powers hereby given with respect to any of the Indebtedness or the Collateral not so assigned or transferred. All representations, warranties and
agreements of the Pledgor if more than one are joint and several and all shall be binding upon the personal representatives, heirs, successors and assigns of the Pledgor. 
 8. Statutory Notice. Under Oregon law, most agreements, promises and commitments made by the Bank concerning loans and other credit extensions which are not for personal, family or household purposes
or secured solely by any Debtor’s residence must be in writing, express consideration and be signed by us to be enforceable. 
  

					
		  	- 5 -	  	
		  		  	

 Date: February 13, 2009 
  

			
	BANK OF AMERICA, N.A.
		
	By:	 	 
		 	Authorized Signer
	
	 Address for Notices:
 Bank of America, N.A.

 Global Product Solutions
 1075 Main Street, 2nd
Floor
 Waltham, MA 02451

	
	Schmitt Industries, Inc.
		
	By:	 	 
	Name:
	Title:
		
	By:	 	 
	Name:
	Title:

  

	
	Pledgor’s Location (principal residence, if the Pledgor is an individual; chief executive office, if the Pledgor is not an individual):
	
	 2765 Northwest Nicolai Street
 Portland, OR
97210

	
	Pledgor’s state of incorporation or organization (if Pledgor is a corporation, partnership, limited liability company or other registered entity): Oregon

  
  

					
		  	- 6 -

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