-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JJ263B2NsP5R4VGgG6S+Bbc51u93QyP7ZoRl2csAK+c7eVU1v8QJ077dXV7Fudd7 l4zHsICye+p00Ut7ve3K0A== 0000950134-04-007194.txt : 20040511 0000950134-04-007194.hdr.sgml : 20040511 20040511101949 ACCESSION NUMBER: 0000950134-04-007194 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20040503 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WSI INDUSTRIES INC CENTRAL INDEX KEY: 0000104897 STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540] IRS NUMBER: 410691607 STATE OF INCORPORATION: MN FISCAL YEAR END: 0828 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-00619 FILM NUMBER: 04795180 BUSINESS ADDRESS: STREET 1: 18151 TERRITORIAL ROAD CITY: OSSEO STATE: MN ZIP: 55369 BUSINESS PHONE: 6124731271 MAIL ADDRESS: STREET 1: 18151 TERRITORIAL ROAD CITY: OSSEO STATE: MN ZIP: 55369 FORMER COMPANY: FORMER CONFORMED NAME: WASHINGTON SCIENTIFIC INDUSTRIES INC DATE OF NAME CHANGE: 19920703 8-K 1 c85252e8vk.txt FORM 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (date of earliest event reported): May 3, 2004 WSI INDUSTRIES, INC. ------------------------ (Exact name of Registrant as specified in its charter) Minnesota 000-00619 41-0691607 - ---------------------------- ------------------------ ------------------ (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation) Identification No.) 18151 Territorial Road, Osseo, Minnesota 55369 - ---------------------------------------- -------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (763) 428-4308 Items 1, 3-6 and 8-12 are not applicable and therefore omitted. ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On May 3, 2004, WSI Industries, Inc. (the "Company") completed the purchase of real property located at 213 Chelsea Road, Monticello, Minnesota pursuant to a Purchase Agreement dated March 12, 2004 between the Company and Remmele Engineering, Inc. ("Remmele"), attached hereto as Exhibit 10.1 (the "Purchase Agreement"). On May 3, 2004, the Company announced the completion of the purchase in a press release attached hereto as Exhibit 99.1 The purchase price for the property was $1,900,000. Payment of the purchase price was funded by: (a) a loan in the amount of $1,360,000 with interest at 5.37% per annum from Excel Bank Minnesota ("Excel Bank") pursuant to a Promissory Note dated May 3, 2004, attached hereto as Exhibit 10.2, under a Loan Agreement dated as of May 3, 2004, attached hereto as Exhibit 10.3; and (b) a loan in the amount of $350,000 with interest at 2% per annum from the Monticello Economic Development Authority ("MEDA") pursuant to a Promissory Note dated May 3, 2004, attached hereto as Exhibit 10.4 under a Loan Agreement dated May 3, 2004, attached hereto as Exhibit 10.5; and (c) Company cash in the amount of $190,000. The consideration for the purchase was determined through arm's-length negotiations between the Company and Remmele. The indebtedness to Excel Bank is secured pursuant to a Mortgage and Security Agreement and Fixture Financing Statement dated as of May 3, 2004 between the Company and Excel Bank, attached hereto as Exhibit 10.6, and the indebtedness to MEDA is secured by a Mortgage dated as of May 3, 2004 between the Company and MEDA, attached hereto as Exhibit 10.7. In connection with the closing of the Purchase Agreement, the Company and its wholly-owned subsidiaries, Taurus Numeric Tool, Inc. and WSI Rochester, Inc., entered into a Second Amendment and Modification of Revolving Line of Credit Loan Agreement and Reaffirmation of Guaranties dated as of May 3, 2004 with Excel Bank, attached hereto as Exhibit 10.8, to modify certain terms of the Company's revolving line of credit promissory note in the original principal amount of $1,000,000 entered into in December 2002. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of Business Acquired. Not applicable. (b) Pro Forma Financial Information. Not applicable. (c) Exhibits
Exhibit No. Description of Exhibit - ----------- ---------------------- 10.1 Purchase Agreement dated as of March 12, 2004 between WSI Industries, Inc. and Remmele Engineering, Inc. 10.2 Promissory Note dated as of May 3, 2004 by WSI Industries, Inc. as debtor and Excel Bank Minnesota as holder in the original principal amount of $1,360,000. 10.3 Loan Agreement dated as of May 3, 2004 between WSI Industries, Inc. and Excel Bank Minnesota. 10.4 Promissory Note dated as of May 3, 2004 by WSI Industries, Inc. as debtor and Monticello Economic Development Authority as holder in the original principal amount of $350,000. 10.5 Loan Agreement dated as of May 3, 2004 between WSI Industries, Inc. and the Monticello Economic Development Authority. 10.6 Mortgage and Security Agreement and Fixture Financing Statement dated as of May 3, 2004 between WSI Industries, Inc. and Excel Bank Minnesota. 10.7 Mortgage dated as of May 3, 2004 between WSI Industries, Inc. and the Monticello Economic Development Authority. 10.8 Second Amendment and Modification of Revolving Line of Credit Loan Agreement and Reaffirmation of Guaranties dated as of May 3, 2004 by and among WSI Industries, Inc., Taurus Numeric Tool, Inc. and WSI Rochester, Inc. and Excel Bank Minnesota. 99.1 Press Release dated May 3, 2004.
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WSI INDUSTRIES, INC. By /s/ Paul D. Sheely ------------------------------- Its Vice President, Finance and Chief Financial Officer Dated: May 11, 2004 EX-10.1 2 c85252exv10w1.txt PURCHASE AGREEMENT Exhibit 10.1 PURCHASE AGREEMENT THIS AGREEMENT is made as of March 12, 2004 (the "Effective Date"), between REMMELE ENGINEERING, INC., a Minnesota corporation ("Seller"), and WSI INDUSTRIES, INC., a Minnesota corporation, or its assigns ("Buyer"). In consideration of this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer agree as follows: 1. Sale of Property. Seller shall sell to Buyer, and Buyer shall buy from Seller, the following property (collectively, the "Property"): (a) Real Property. The real property located at 213 Chelsea Road, Monticello, Minnesota, legally described on the attached Exhibit A, together with all buildings and improvements constructed or located thereon, all fixtures and installed equipment therein, and all easements and rights benefiting or appurtenant thereto (collectively the "Real Property"). The Real Property is subject to the Permitted Encumbrances described in Section 6 of this Agreement. (b) Personal Property. Seller's interest in any personal property located at the Real Property used in the operation and maintenance of the Real Property (the "Personal Property"). (c) Contracts. Seller's interests in any assignable service and maintenance contracts, equipment leases and other contracts, if any, regarding the Real Property (the "Contracts"). (d) Permits. Seller's interests in all assignable permits and licenses benefiting the Property, if any (the "Permits"). (e) Warranties. Seller's interests in all assignable warranties and guaranties given to, assigned to or benefiting Seller or the Real Property regarding the acquisition, construction, design, use, operation, management or maintenance of the Real Property, if any (the "Warranties"). (f) Plans. Seller's interests in the blueprints, plans and specifications regarding the Real Property, if any, in Seller's possession or immediately available to Seller (the "Plans"). (g) Records. All records of Seller regarding the Property which are known by Seller to be in its possession or immediately available to Seller, including all Contracts, Permits, Warranties, Plans, a schedule of the Personal Property, if any, surveys, environmental reports and soil reports, all records regarding management and leasing, real estate taxes and assessments, maintenance, repairs and capital improvements, but excluding, appraisals, insurance policies and insurance records, tax returns and such other records as are normally viewed as confidential, provided that such other records are not necessary, in Seller's reasonable judgment, to the continued operation and management of the Real Property (the "Records"). 2. Purchase Price and Manner of Payment. The total purchase price for the Property (the "Purchase Price") is One Million Nine Hundred Thousand and no/100 Dollars ($1,900,000.00). Buyer shall pay the Purchase Price to Seller as follows: (a) $25,000.00 (the "Earnest Money") to be paid within five (5) days of the Effective Date to First American Title Insurance Company ("Title"), the sufficiency of which Seller hereby acknowledges; and (b) $1,875,000.00 by wire transfer to Title for the benefit of Seller by 2:00 p.m. on the Closing Date, defined below (the "Closing Payment"). Title, by executing the attached Joinder, acknowledges that it has received the Earnest Money on behalf of the Seller and agrees to deposit the Earnest Money in a segregated, interest bearing account insured by the FDIC and to hold and disburse the Earnest Money in the manner specified by this Agreement. All interest earned on the Earnest Money shall be added to and become part of the Earnest Money. 3. Contingencies. The obligations of Buyer under this Agreement are contingent upon each of the following (the "Contingencies"): (a) Title. Title shall have been found acceptable, or been made acceptable, in accordance with the requirements and terms of Section 6 below. (b) Testing. Buyer shall have determined, on or before the Contingency Date, that it is satisfied with the results of and matters disclosed by soil tests, engineering inspections, hazardous waste and environmental reviews, business feasibility reviews of the Property and such other tests, studies and investigations as Buyer deems necessary in its sole determination (the "Tests"), all Tests to be obtained at Buyer's sole cost and expense. Until the Closing Date, Seller shall allow Buyer, and Buyer's agents, access to the Real Property without charge and at all reasonable times for the purpose of Buyer completing the Tests. Buyer shall deliver to Seller reasonable prior written notice of its planned entry onto the Property and Buyer shall conduct its activities in a manner so as not to unreasonably disturb or interfere with the activities of Seller or any tenant or occupant of the Property nor materially disturb the structural components of the Building. Buyer shall pay all costs and expenses of the Tests and shall indemnify and hold Seller and the Property harmless from all costs and liabilities, including mechanics' liens, relating to the Buyer's activities and those of its agents on or about the Property. Buyer shall further repair and restore any damage to the Property caused by or occurring during Buyer's testing and shall return the Property to substantially the same condition as existed prior to such entry. Buyer shall promptly deliver to Seller true and correct copies of all Test reports upon receipt of same. Buyer's obligations in this Section 3(b) are referred to herein as "Buyer's 2 Due Diligence Obligations" and Buyer's Due Diligence Obligations shall specifically survive the termination or cancellation of this Agreement. (c) Document Review. Within fifteen (15) days after the Effective Date, Seller shall deliver to Buyer true and correct copies of the Records. Buyer shall have determined, on or before the Contingency Date, that it is satisfied with its review and analysis of the Records. (d) Government Approvals. Buyer shall have obtained at its sole cost and expense, on or before the Closing, all final governmental approvals necessary in Buyer's judgment in order to make use of the Property as Buyer intends. Seller shall, without charge to Buyer, cooperate in Buyer's attempts to obtain all such governmental approvals. (e) Board Approval. Buyer shall obtain the approval of this Agreement by its Board of Directors. (f) Financing. Buyer shall have received, on or before the Contingency Date, a commitment for financing its purchase of the Property upon terms and conditions acceptable to Buyer in its sole determination. (g) Seller's Obligations. Each of Seller's representations and warranties are true and each covenant and obligation of Seller hereunder shall be performed. The Contingency Date May 11, 2004. If any of the foregoing contingencies have not been satisfied in Buyer's sole discretion, or waived by Buyer, on or before the stated date (or by the Closing Date if no date is specified), then this Agreement may be terminated, at Buyer's option, by written notice from Buyer to Seller at any time prior to the Contingency Date. Such notice of termination may be given at any time on or before the stated date for such contingency (or the Closing Date if no date is specified). Upon such termination, the Earnest Money shall be immediately returned to Buyer and upon such return neither party will have any further rights or obligations regarding this Agreement or the Property. All the contingencies set forth in this Agreement are specifically stated and agreed to be for the sole and exclusive benefit of the Buyer and the Buyer shall have the right to unilaterally waive any contingency by written notice to Seller. 4. Closing. The closing of the purchase and sale contemplated by this Agreement (the Closing) shall occur on the earlier of: (a) ten (10) days after Buyer delivers written notice to Seller that it has satisfied or waived all contingencies, or (b) May 15, 2004 (the "Closing Date"). The Closing shall take place at 10:00 a.m. local time at the office of Buyer's counsel. Seller shall deliver possession of the Property to Buyer on the Closing Date. (a) Seller's Closing Documents. On the Closing Date, Seller shall execute and/or deliver to Buyer the following (collectively, the "Seller's Closing Documents"): (1) Warranty Deed. A Warranty Deed conveying Seller's interest in the Real Property to Buyer, free and clear of all encumbrances except the Permitted Encumbrances, which Deed shall contain a certification that the Seller does 3 not know of the location of any wells upon the Real Property or Seller shall deliver a well certificate in compliance with all applicable laws. (2) Bill of Sale. A Bill of Sale conveying all of Seller's interest in the Personal Property. (3) Assignment of Contracts, Permits, Warranties. An Assignment of Contracts, Permits, and Warranties. (4) Seller's Affidavit. An Affidavit of Seller indicating that on the Closing Date there are no outstanding, unsatisfied judgments, tax liens or bankruptcies against or involving Seller or the Property; that there has been no skill, labor or material furnished to the Property at Seller's request for which payment has not been made or for which mechanics' liens could be filed and that there are no other unrecorded interests in the Real Property. (5) FIRPTA Affidavit. A non-foreign affidavit, properly executed and in recordable form, containing such information as is required by IRC Section 1445(b)(2) and its regulations. (6) Abstract. The abstract(s) of title regarding the Real Property. (7) Bring Down Certificate. A Bring Down Certificate stating that the representations and warranties of Seller in Section 8 are true and correct as of the Closing Date. (8) Records. Originals of the Records, to the extent they exist and are in Seller's possession. (9) Other Documents. All other documents reasonably determined by Title to be necessary to transfer the fee interest in the Property to Buyer in the manner specified herein. (b) Buyer's Closing Documents. On the Closing Date, Buyer shall execute and/or deliver to Seller the following (collectively, the "Buyer's Closing Documents"): (1) Closing Payment. The Closing Payment, by wire transfer of U.S. Federal Funds, to be received in Title's trust account, for delivery to Seller, on the Closing Date. (2) Title Documents. Such Affidavits of Buyer, Certificates of Real Estate Value or other documents as may be reasonably required by Title in order to record the Seller's Closing Documents. (3) Assumption of Contracts, Permits, Warranties. An Assumption of Contracts, Permits, and Warranties. 4 5. Prorations. Seller and Buyer agree to the following prorations and allocation of costs regarding this Agreement: (a) Title and Closing Fees. Seller shall pay all costs of the Title Evidence, as defined below. Buyer shall pay all premiums required for the issuance of any owner's or lender's policy issued pursuant to the Title Evidence. Seller and Buyer shall share equally the Title's closing fee or charge. (b) Real Estate Taxes and Special Assessments. General real estate taxes and installments of special assessments payable therewith ("Taxes") due and payable in the year prior to the year in which the Closing Date occurs and all prior years shall be paid by Seller. Taxes due and payable in the year in which the Closing Date occurs shall be prorated between Seller and Buyer as of the Closing Date. Buyer shall pay the Taxes due and payable in the year subsequent to the year in which the Closing Date occurs and thereafter. Buyer shall assume all special assessments levied, pending or ordered against the Property as of, and after, the Closing Date. (c) Recording Costs. Seller will pay the cost of recording all documents necessary to place record title in the condition warranted and represented by Seller in this Agreement. Buyer will pay the cost of recording all other documents and the mortgage registration tax due with respect to any mortgage. (d) Other Costs. All other income, rents, fees, costs, expenses, operating costs of the Property and any other income or expenses shall be prorated between Seller and Buyer as of the Closing Date. (e) Attorneys' Fees. Each of the parties will pay its own attorneys' fees, except that a party defaulting under this Agreement or any closing document will pay the reasonable attorneys' fees and court costs incurred by the non-defaulting party to enforce its rights regarding such default. 6. Title Examination. Title Examination will be conducted as follows: (a) Title Evidence. The following constitutes the Title Evidence: (1) Title Insurance Commitment. Within fifteen (15) days from the Effective Date, Seller shall deliver to Buyer a commitment (the "Commitment") for a 1992 ALTA Owner's Policy of Title Insurance insuring title to the Real Property in the amount of the Purchase Price, issued by Title. The Commitment will commit Title to insure title to the Buyer's interest in Property subject only to the Permitted Encumbrances and the so-called standard exceptions to coverage. (2) Survey. Within thirty (30) days from the Effective Date, Seller shall deliver to Buyer a copy of Seller's existing survey of the Property. 5 (3) UCC Searches. Within fifteen (15) days from the Effective Date, Seller shall deliver to Buyer a report of UCC Searches made of the Uniform Commercial Code records of the Secretary of State of Minnesota, made by said Secretary of State, or by a search firm acceptable to Buyer, showing no UCC filings regarding any of the Personal Property included in this Agreement. (b) Buyer's Objections. Within thirty (30) days after receiving the last of the Title Evidence, Buyer shall make written objections (the "Objections") to the form and/or contents of the Title Evidence. Buyer's failure to make Objections within such time period will constitute waiver of Objections. Any matter shown on such Title Evidence and not objected to by Buyer shall be a Permitted Encumbrance. Seller will have thirty (30) days after receipt of the Objections to cure the Objections, during which period the Closing will be postponed as necessary. Seller shall use commercially reasonable efforts to correct any Objections. Buyer may object to any easements, restrictions or reservations of record which interfere with Buyer's intended use of the Real Property. If the Objections are not cured within such thirty (30) day period, Buyer will have the option to do any of the following: (1) Terminate this Agreement; or (2) Waive the Objections and proceed to close. 7. Operation Prior to Closing. During the period from the date of Seller's acceptance of this Agreement to the Closing Date (the "Executory Period"), Seller shall operate and maintain the Property in the ordinary course of business in accordance with prudent, reasonable business standards, including the maintenance of adequate liability insurance and insurance against loss by fire, windstorm and other hazards, casualties and contingencies, including vandalism and malicious mischief. However, Seller shall execute no contracts, leases or other agreements regarding the Property during the Executory Period that are not terminable on or before the Closing Date, without the prior written consent of Buyer. 8. Representations and Warranties by Seller. Seller represents and warrants to Buyer as follows: (a) Authority. Seller is a Minnesota corporation; Seller is duly qualified to transact business in the State of Minnesota; Seller has the requisite power and authority to enter into and perform this Agreement and those Seller's Closing Documents signed by it; such documents have been duly authorized by all necessary action on the part of the Seller and have been duly executed and delivered; such execution, delivery and performance by Seller of such documents does not conflict with or result in a violation of Seller's organizational documents or any judgment, order, or decree of any court or arbiter to which Seller is a party; such documents are valid and binding obligations of Seller, and are enforceable in accordance with their terms. (b) Title to Real Property. Seller owns the Property, free and clear of all encumbrances except Permitted Encumbrances. 6 (c) Environmental Laws. Except as disclosed on the Disclosure Schedule attached as Exhibit B and to the best knowledge of Seller without inquiry or investigation, no toxic or hazardous substances or wastes, pollutants or contaminants (including, without limitation, asbestos, urea formaldehyde, the group of organic compounds known as polychlorinated biphenyls, petroleum products including gasoline, fuel oil, crude oil and various constituents of such products, and any hazardous substance as defined in the Comprehensive Environmental Response Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C. Section 9601-9657, as amended) have been generated, treated, stored, released or disposed of, or otherwise placed, deposited in or located on the Property nor has any activity been undertaken on the Property that would cause or contribute to (i) the Property to become a treatment, storage or disposal facility within the meaning of, or otherwise bring the Property within the ambit of, the Resource Conservation and Recovery Act of 1976 ("RCRA"), 42 U.S.C.Section 6901 et seq., or any similar state law or local ordinance, (ii) a release or threatened release of toxic or hazardous wastes or substances, pollutants or contaminants, from the Property within the meaning of, or otherwise bring the Property within the ambit of, CERCLA, or any similar state law or local ordinance, or (iii) the discharge of pollutants or effluents into any water source or system, the dredging or filling of any waters or the discharge into the air of any emissions, that would require a permit under the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq., or the Clean Air Act, 42 U.S.C., Section 7401 et seq., or any similar state law or local ordinance. No above ground or underground tanks, are located in or about the Real Property. To the extent storage tanks exist on or under the Real Property such storage tanks have been duly registered with all appropriate regulatory and governmental bodies and otherwise are in compliance with applicable Federal, state and local statutes, regulations, ordinances and other regulatory requirements. (d) Compliance with Laws. Seller has not been cited for any violations of any rule, regulation, code, resolution, ordinance, statute or law involving the use, maintenance, or operation or condition of the Property, or any part thereof or installations therein, and the Property fully and duly complies with all applicable resolutions, statutes, laws, rules, regulations, and codes of all governmental units, authorities, agencies, and environmental protection agencies having authority over the Property. (e) Rights of Others to Property. Seller has not entered into any other contracts for the sale of the Property, nor are there any effective rights of first refusal or options to purchase the Property or any other legal or equitable rights of others that might prevent the consummation of this Agreement or the development and use of the Property as Buyer intends. (f) Contracts. All of the Contracts may be cancelled on not more than thirty (30) days notice without premium or penalty except as disclosed on the Disclosure Schedule attached as Exhibit B. (g) Seller's Defaults. To Seller's knowledge, Seller is not in default concerning any of its other obligations or liabilities regarding the Property. 7 (h) FIRPTA. Seller is not a "foreign person," "foreign partnership," "foreign trust" or "foreign estate" as those terms are defined in Section 1445 of the Internal Revenue Code. (i) Proceedings. There is no litigation, condemnation or proceeding of any kind pending or to Seller's knowledge threatened, against any portion of the Property. (j) Assessments. Seller has received no notice of actual or threatened imposition of any special assessment or any reassessment of the Real Property's current real estate tax valuation and, to the best of Seller's knowledge based upon reasonable inquiry as of the date of this Agreement, there are no certified, levied, pending special assessments in excess of $150.00. Seller will indemnify Buyer, its successors and assigns, against, and will hold Buyer, its successors and assigns, harmless from, any expenses or damages including reasonable attorneys' fees, that Buyer incurs because of the breach of any of the above representations and warranties, whether such breach is discovered before or after closing. Each of the representations and warranties herein shall survive the Closing for a period of three years. Consummation of this Agreement by Buyer with knowledge of any breach of such representations and warranties by Seller shall not constitute a waiver or release by Buyer of any claims due to such breach. 9. Representations and Warranties by Buyer. Buyer represents and warrants to Seller that the execution and performance by Buyer of this Agreement does not violate or contravene any agreement or court order to which Buyer is bound and that this Agreement and the Buyer's Closing Documents when executed by Buyer constitute the binding agreement and obligation of Buyer, enforceable against Buyer in accordance with their terms. 10. Damage. If, prior to the Closing Date, all or any part of the Property is substantially damaged by fire, casualty, the elements or any other cause, Seller shall immediately give notice to Buyer of such fact and at Buyer's option (to be exercised within ten (10) days after Seller's notice), this Agreement shall terminate, in which event neither party will have any further obligations under this Agreement (except for Buyer's Due Diligence Obligations) and the Earnest Money shall be refunded to Buyer. If Buyer fails to elect to terminate despite such damages, or if the Property is damaged, but not substantially, Seller shall assign to Buyer all right to receive the proceeds of all insurance related to such damage and the Purchase Price shall remain the same. For purposes of this Section, the words "substantially damaged" mean damage that would cost Twenty-five Thousand and no/100 Dollars ($25,000.00) or more to repair. 11. Condemnation. If, prior to the Closing Date, eminent domain proceedings are commenced against all or any part of the Property, Seller shall immediately give notice to Buyer of such fact and at Buyer's option (to be exercised within thirty (30) days after Seller's notice), this Agreement shall terminate, in which event neither party will have further obligations under this Agreement and the Earnest Money shall be refunded to Buyer. If Buyer shall fail to give such notice, there shall be no reduction in the Purchase Price, and Seller shall assign to Buyer at the Closing Date all of Seller's right, title and interest in and to any award made or to be made in the condemnation 8 proceedings. Prior to the Closing Date, Seller shall not designate counsel, appear in, or otherwise act with respect to the condemnation proceedings without Buyer's prior written consent. 12. Broker's Commission. Seller has retained CB Richard Ellis as its broker in this transaction. Buyer has retained Remax Results as its broker in this transaction. Seller is responsible for any commission payable to CB Richard Ellis, and the parties agree and acknowledge that CB Richard Ellis will compensate Remax Results pursuant to the terms of a separate agreement. Seller and Buyer represent and warrant to each other that they have dealt with no other brokers, finders or the like in connection with this transaction, and agree to indemnify each other and to hold each other harmless against all other claims, damages, costs or expenses of or for any fees or commissions resulting from their separate actions or agreements regarding the execution or performance of this Agreement, and will pay all costs of defending any action or lawsuit brought to recover any such fees or commissions incurred by the other party, including reasonable attorneys' fees. 13. Mutual Indemnification. Seller and Buyer agree to indemnify each other against, and hold each other, harmless from, all liabilities (including reasonable attorneys' fees in defending against claims) to the extent arising out of the ownership, operation or maintenance of the Property for their respective periods of ownership. Such rights of indemnification will not arise to the extent that (a) the party seeking indemnification actually receives insurance proceeds or other cash payments directly attributable to the liability in question, (net of the cost of collection, including reasonable attorneys' fees) or (b) to the extent that the claim for indemnification arises out of the act or neglect of the party seeking indemnification. If and to the extent that the indemnified party has insurance coverage, or the right to make claim against any third party for any amount to be indemnified against as set forth above, the indemnified party will, upon full performance by the indemnifying party of its indemnification obligations, assign such rights to the indemnifying party or, if such rights are not assignable, the indemnified party will diligently pursue such rights by appropriate legal action or proceeding and assign the recovery and/or right of recovery to the indemnifying party to the extent of the indemnification payment made by such party 14. Assignment. Either party may assign its rights under this Agreement, and shall provide the other party with written notice. 15. Notices. Any notices required or permitted to be given hereunder shall be in writing and shall be effective (i) when delivered personally, (ii) when received by overnight courier service or facsimile communications (provided that a copy of such notice is deposited in the United States mail within one (1) business day of the facsimile transmission) or (iii) three (3) days after being deposited in the United States Mail (sent certified or registered, return receipt requested), in each case addressed as follows (or to such other address as the parties hereto may designate in the manner set forth herein): 9 If to Seller: Remmele Engineering, Inc. 10 Old Highway 8 SW New Brighton, MN 55112 Facsimile: (651) 635-4170 Attn: Charles Jungman Dorsey & Whitney LLP 50 South Sixth Street Suite 1500 Minneapolis, MN 55402 Facsimile (612) 340-2644 Attn: Robert J. Olson If to Buyer: WSI Industries, Inc. 18151 Territorial Road Osseo, MN 55369 Facsimile: _____________ Attn: Mike Pudil with a copy to: Lindquist & Vennum P.L.L.P. 4200 IDS Center 80 South Eighth Street Minneapolis, MN 55402 Facsimile: (612) 371-3207 Attn: Laura L. Krenz 16. Captions. The paragraph headings or captions appearing in this Agreement are for convenience only, are not a part of this Agreement and are not to be considered in interpreting this Agreement. 17. Entire Agreement; Modification. This written Agreement constitutes the complete agreement between the parties and supersedes any prior oral or written agreements between the parties regarding the Property. There are no verbal agreements that change this Agreement and no waiver of any of its terms will be effective unless in a writing executed by the parties. 18. Binding Effect. This Agreement binds and benefits the parties and their successors and assigns. 19. Controlling Law. This Agreement has been made under the laws of the State of Minnesota, and such laws will control its interpretation. 20. Remedies. If Buyer defaults under this Agreement, Seller shall have the right to terminate this Agreement pursuant to Minnesota Statutes Section 559.21, and upon such termination Seller will retain the Earnest Money, and all interest accrued thereon, as liquidated damages, time being of the essence of this Agreement. Seller's retention of the Earnest Money is Seller's sole and exclusive remedy in the event of a Buyer default under this Agreement. If Seller defaults under this 10 Agreement, Buyer may, as its sole remedy, either (a) terminate this Agreement by written notice to Seller, whereupon the Earnest Money shall be returned to Buyer, and recover as damages from Seller Buyer's actual out-of-pocket costs and fees, including without limitation, reasonable attorneys' fees, accountants' fees and other consultants' fees incurred by Buyer in preparing and negotiating this Agreement, preparing for the closing, obtaining financing commitments, investigating the status, title and condition of the Property, and other similar and reasonable costs and expenses, or (b) bring an action for specific performance provided such action must be commenced within twelve (12) months of Seller's default. If Seller defaults under this Agreement, Buyer shall have no right to seek damages from Seller for Buyer's loss of its bargain in failing to acquire the Property. 21. Confidentiality. Seller will, from and after the date of this Agreement, hold the terms of this Agreement in confidence and not disclose it or the fact this Agreement has been entered into without Buyer's prior written consent; provided, however, that Seller may disclose the terms of this Agreement to those parties reasonably necessary to satisfy Seller's obligations under this Agreement, but then only to the extent reasonably necessary to satisfy Seller's obligations under this Agreement. Seller and Buyer have executed this Agreement as of the date first written above. SELLER: Remmele Engineering, Inc. By: /s/ Charles Jungmann ----------------------------------------- Its: BUYER: WSI Industries, Inc. By: /s/ Michael J. Pudil ----------------------------------------- Its: President and Chief Executive Officer 11 EX-10.2 3 c85252exv10w2.txt PROMISSORY NOTE Exhibit 10.2 PROMISSORY NOTE $1,360,000.00 Edina, Minnesota May 3, 2004 FOR VALUE RECEIVED, the undersigned, WSI Industries, Inc., a Minnesota corporation ("Borrower"), promises to pay to the order of Excel Bank Minnesota ("Lender"), a banking institution organized and existing under the laws of Minnesota, at 50 South Sixth Street, Suite 1000, Minneapolis MN 55402 or at any other place designated from time to time by the holder hereof, in lawful money of the United States of America, pursuant to the terms hereof, the principal sum of One Million Three Hundred and Sixty Thousand and 00/100 ($1,360,000.00) Dollars, together with interest (computed on the basis of the actual number of days that have elapsed in a 360-day year) on the principal amount of this Note outstanding from time to time at the initial rate of interest of five and thirty-seven one hundredths (5.37%) percent per annum. Such rate of interest shall be adjusted on May 3, 2009 ("Change Date"), at which time the rate of interest shall be adjusted to two and one half (2.50%) percent above the monthly yield on United States Treasury Securities adjusted to a constant maturity of five (5) years as published in the most recent publication of the Federal Reserve Board's Statistical Release H.15(519) ("Index"). If such Index is no longer published or is not otherwise available, the holder hereof may designate a reasonable alternative, which shall thereafter serve as the Index hereunder. On the Change Date, the Lender shall calculate the new interest rate by adding two and one half (2.50) percentage points to the Index rate. Thereafter, such new interest rate shall be the interest rate under the Note. Said principal and interest shall be paid in monthly installments of not less than $8,307.00 commencing on June 1, 2004 and continuing monthly thereafter on the first (1st) day of each and every month until the Change Date, at which time the monthly payments hereunder shall be adjusted such that said payments are sufficient to amortize the entire outstanding balance originally due hereunder, based on an assumed twenty-five (25) year amortization beginning on the date hereof and based on the new rate of interest. Said monthly payments in such new amount shall continue each and every month until May 1, 2014, at which time the entire remaining balance due and owing hereunder, including all principal and accrued but unpaid interest, shall be due and payable in full. Payments hereunder shall be applied first to accrued but unpaid interest, and then to principal. This Note is secured in part by a Mortgage and Security Agreement and Fixture Financing Statement upon certain real property located in Wright County, Minnesota, and is made in conjunction with a Loan Agreement and related documents of even date herewith. If any installment hereof is not paid within five (5) days of the date when due, or if the undersigned shall fail to perform or observe any obligation binding upon the undersigned under any mortgage or security instrument securing this Note and is not cured within applicable grace periods or under any other agreement between the undersigned and the holder hereof and is not cured within applicable grace periods, or if any default or event of default shall occur under any such agreement, then (in any such event) the holder hereof may, at its option, declare the entire principal balance then remaining unpaid on this Note to be immediately due and payable, and the same shall thereupon be immediately due and payable, together with all interest accrued hereon, without notice or demand. Notwithstanding anything to the contrary herein, during the continuance of any event or condition of default hereunder or under any contract, agreement, obligation or liability of the undersigned in favor of the Lender, Lender, at its option, may if permitted under applicable law, and after any applicable notice or cure period, increase the variable rate of interest on this Note to two (2.00) percentage points over and above the otherwise applicable rate under this Note. Under no circumstances shall the rate of interest hereunder exceed the maximum rate permitted by law. If any installment hereunder or other payment due to the Lender is paid more than ten (10) days after its due date, the undersigned shall owe to the Lender the sum of five (5.00%) percent of the scheduled installment or payment or Five and 00/100 ($5.00) Dollars, whichever is greater. The Borrower may prepay the Note provided that any additional principal payments beyond the regularly scheduled payment amounts shall be subject to a prepayment premium of one (1.00%) percent of principal prepaid. Notwithstanding the foregoing to the contrary, Borrower may prepay up to an additional ten (10.00%) percent of the outstanding principal balance of the Note in each calendar year, without penalty. Notwithstanding the foregoing, the prepayment premium shall be waived by the holder of this Note, in the event that prepayment of this Note in full is tendered to the holder within the sixty (60) days immediately preceding the Change Date. To the extent permitted by law, the undersigned agrees to pay all costs of collection, including reasonable attorneys' fees and legal expenses, incurred by the holder hereof in the event this Note is not duly paid. Presentment or other demand for payment, notice of dishonor and protest are hereby expressly waived. WSI INDUSTRIES, INC., a Minnesota corporation By: /s/ Paul D. Sheely ---------------------------------- Paul D. Sheely Its: Chief Financial Officer 2 EX-10.3 4 c85252exv10w3.txt LOAN AGREEMENT Exhibit 10.3 LOAN AGREEMENT This Loan Agreement ("Agreement") is made this 3rd day of May, 2004, by and among WSI Industries, Inc., a Minnesota corporation, having the address described in section VII.F hereof ("Borrower"), Excel Bank Minnesota, having a principal business address of 50 South Sixth Street, Suite 1000, Minneapolis MN 55402 ("Lender"). WITNESSETH: WHEREAS, Borrower seeks to obtain a loan from Lender in the amount of One Million Three Hundred and Sixty Thousand and 00/100 ($1,360,000.00) Dollars to acquire title to the real property located in Wright County, Minnesota which property is legally described on the attached Exhibit A ("Mortgaged Premises"); and WHEREAS, the Lender desires to loan One Million Three Hundred and Sixty Thousand and 00/100 ($1,360,000.00) Dollars to Borrower pursuant to and subject to the terms and conditions of this Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties, the parties agree as follows: I. THE LOAN. The Lender shall loan to Borrower the sum of One Million Three Hundred and Sixty Thousand and 00/100 ($1,360,000.00) Dollars ("Loan") pursuant to the terms and conditions of a promissory note ("Promissory Note") in form and substance acceptable to Lender. The Loan shall bear interest and all payments shall be made as described in the Promissory Note. A. The parties acknowledge and agree that the sole purpose of the Loan is to enable Borrower to acquire title to the Mortgaged Premises. Borrower shall be in default under this Agreement if any of the proceeds from the Promissory Note are used for any purpose other than as described above. B. Borrower shall, on or before the execution hereof, provide Lender a Phase I Environmental Investigation Report regarding the Mortgaged Premises. The Loan shall be conditioned upon Lender, in Lender's sole discretion, being satisfied with the results of the Phase I Environmental Investigation Report. C. The Lender may maintain from time to time, at its discretion, liability records as to any and all loans made or repaid and interest accrued or repaid under this Agreement. All entries made on any such record shall be presumed correct until Borrower establishes the contrary. On demand by the Lender, Borrower will admit and certify in writing the exact principal balance that Borrower then asserts to be outstanding to the Lender for the Loan. Any billing statement or accounting rendered by the Lender shall be conclusive and fully binding on Borrower unless specific written notice of exception is given to the Lender at its address described above by Borrower within thirty (30) days after its receipt by Borrower. D. Borrower shall, on or before the execution hereof, reimburse Lender for all of Lender's reasonable attorneys' fees and all related costs incurred by the Lender in drafting this Agreement, the related documents, negotiating its terms with the parties hereto and establishing Lender's collateral position, including title insurance costs. Borrower agrees that Lender may at any time or from time to time, without further request by or notice to Borrower, make a loan to Borrower in the sum of such attorneys' fees and costs and add such indebtedness to other indebtedness of Borrower under the Promissory Note or the Lender may apply proceeds of the Promissory Note directly to pay such attorneys' fees and costs. E. Prior to the execution hereof, Borrower shall cause to be delivered to the Lender, at Borrower's expense an appraisal certified to the Lender for the Mortgaged Premises by an M.A.I. appraiser acceptable to the Lender, engaged by the Lender. The appraisal shall be satisfactory to Lender in all respects. The initial appraisal shall provide for a current, as is market value of the Mortgaged Premises not to exceed seventy-two (72.00%) percent loan to value based on the total principal amount of the Loan on the date hereof. F. Borrower acknowledges and agrees that Borrower shall pay an origination fee to the Lender of Six Thousand Eight Hundred ($6,800.00) Dollars, which origination fee shall be paid in certified funds or cash on or before the closing of the Loan. II. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to the Lender that: A. Borrower is a corporation duly organized and existing in good standing under the laws of the State of Minnesota. It has the power to own its property and to carry on its 2 business as now conducted and is duly qualified to do business in all states in which such qualification is required. B. Borrower is duly authorized and empowered to execute, deliver and perform this Agreement and to borrow money from the Lender. C. The execution and delivery of this Agreement and the performance by Borrower of its obligations hereunder do not and will not violate or conflict with any provisions of law or the Articles of Incorporation or Bylaws of Borrower and do not and will not violate or conflict with or cause any default or event of default to occur under any agreement binding upon Borrower. D. The execution and delivery of this Agreement have been duly approved by all necessary action of the Board of Directors of Borrower; and this Agreement has in fact been duly executed and delivered by Borrower and constitutes its lawful and binding obligation, legally enforceable against it in accordance with its terms (subject to laws generally affecting the enforcement of creditors' rights). E. To the best knowledge of Borrower, no litigation, tax claims, or governmental proceedings are pending or are threatened against Borrower and no order of any court or administrative agency is outstanding against Borrower. F. The authorization, execution, delivery and performance of this Agreement are not and will not be subject to the jurisdiction, approval, or consent of or to any requirement of registration with or notification to any federal, state or local regulatory body or administrative agency. G. The conduct of business by Borrower is not subject to registration with, notification to, or regulation, licensing, franchising, consent or approval by any state or federal governmental authority or administrative agency except general laws and regulations which are not related or applicable particularly or uniquely to the type of business conducted by Borrower, which do not materially restrict or limit the business of Borrower, and with which Borrower is in full compliance. All registrations and notifications required to be made, and all licenses, franchises, permits, operating certificates, approvals, and consents required to be issued to enter into or conduct such business have been duly and lawfully made or obtained and issued, and all terms and conditions set forth therein or imposed thereby have been duly met and complied with. H. To the best knowledge of Borrower based upon reasonable inquiry, no director, officer, employee, or agent of or consultant to Borrower is prohibited by law, by regulation, by contract, or by the terms of any license, franchise, permit, certificate, approval, or consent from participating in the business of Borrower as manager or member employee, or agent of or as consultant to Borrower or is the subject to any pending or, to Borrower's best knowledge, threatened proceeding which, if determined adversely, would or could result in such a prohibition. 3 I. Borrower has filed all federal and state tax returns that are required to be filed, and all taxes shown as due thereon have been paid. J. Borrower furnished certain financial statements to the Lender in conjunction with the execution of this Agreement. Borrower acknowledges and agrees that the Lender has acted in reliance upon the information contained within said financial statements prior to the execution of this Agreement and/or prior to making advances to Borrower hereunder. These financial statements were prepared in accordance with generally accepted accounting principles consistently maintained and present fairly the financial condition of Borrower as of the dates thereof, and disclose fully all liabilities of Borrower, whether or not contingent. Since the date of the most recent financial statement, there has been no material adverse change in the financial condition of Borrower. So long as any sums remain due and payable pursuant to the Promissory Note, Borrower shall furnish Lender with such further financial statements and other financial information, such as copies of tax returns, as Lender may reasonably request or as otherwise required by any document executed in conjunction herewith. In addition, Borrower shall within ninety (90) days after the end of each fiscal year furnish to the Lender audited financial and operating statements of the Borrower for such fiscal year, including a balance sheet and a profit and loss statement, all in reasonable detail and conforming to generally accepted accounting principles. Borrower shall also within thirty (30) days after the end of each month year furnish to the Lender the interim financial statements of the Borrower. All such financial statements shall be prepared and certified by the Borrower to the satisfaction of the Lender at the expense of Borrower. In the event Borrower fails to furnish any such financial statements, the Lender may cause an audit to be made of the respective books and records at the sole cost and expense of the Borrower (and Lender may add the expenses of such audit to the Loan) or otherwise declare an Event of Default hereunder. Lender also shall have the right to examine at their place of safekeeping at reasonable times all books, accounts and records relating to the business operations of the Borrower and the operation of the Mortgaged Premises. K. The Mortgaged Premises and the intended use of thereof for the purpose and in the manner contemplated by this Agreement are permitted by and comply in all material respects with all presently applicable use or other restrictions and requirements in prior conveyances, zoning ordinances and all development, pollution control, water conservation, environmental and other laws, regulations, rules and ordinances of the Unites States and the State of Minnesota and the respective agencies thereof, and the political subdivision in which the Mortgaged Premises is located. L. Borrower shall allow no encumbrances or liens to be placed upon the Mortgaged Premises without the prior written consent of the Lender. The Lender hereby consents to a second mortgage in favor of the City of Monticello, Minnesota in the amount of not more than Three Hundred fifty Thousand and 00/100 ($350,000.00) Dollars. III. BREACH OF REPRESENTATIONS AND WARRANTIES. The material breach of any of the representations or warranties contained in this Agreement or of any of conditions of default or other breach of the covenants or other promises contained in this Agreement, the Promissory 4 Note, the Mortgage, the Assignment of Lease, or any instrument executed in conformity therewith, shall entitle the Lender to pursue any of its rights and remedies under the terms and conditions of any such documents or instruments or as otherwise allowed by law. IV. RESERVATION OF RIGHT TO MAKE DEMAND. Borrower acknowledge that the Lender reserves the right to accelerate and demand immediate payment of any or all loans and the interest thereon and of all other obligations of Borrower upon the failure of Borrower to comply with any aspect of this Agreement, the Promissory Note, the Mortgage, the Assignment of or any other document or instrument executed in conformity herewith. V. DOCUMENTATION. Borrower agree that prior to the Lender advancing any sums to Borrower under the Promissory Note: A. Borrower shall furnish to the Lender: 1. a certified copy of the resolutions of the Board of Directors of the Borrower, authorizing the execution, delivery and performance of this Agreement and related documents, in form and substance acceptable to Lender; 2. current copies of the Articles of Incorporation or Bylaws, if any, and any amendments thereto certified by the Secretary of the Borrower and any amendments thereto together with a certificate of the secretary of the Borrower in a form acceptable to the Lender. 3. A current Certificate of Good Standing from the Secretary of State of the State of Minnesota. B. Borrower shall deliver to Lender a Mortgage and Security Agreement and Fixture Financing Statement, which shall be in form and substance acceptable to the Lender ("Mortgage"), which Mortgage shall be a first lien on the Mortgaged Premises. C. Borrower shall execute an assignment of its right, title, and interest in and to its leases for the Mortgaged Premises to the Lender, which assignment shall be in form and substance acceptable to the Lender ("Assignment of Lease"). D. Borrower shall execute and deliver to Lender an environmental indemnity agreement and an Americans with Disabilities Act indemnity agreement ("Indemnity Agreements") each of which shall be in a form acceptable to Lender. E. Borrower shall provide Lender with certified copies of policies of insurance providing for proper and adequate insurance coverage for the Mortgaged Premises at or prior to closing, which shall include, but not necessarily be limited to liability coverage, fire, casualty and extended coverage, all in form and amount satisfactory to the Lender. Such policies shall be paid and shall be in amounts of not less than the full insurable value of the Mortgaged Premises or as otherwise required by the Mortgage. 5 F. The Lender shall obtain at Borrower's expense a mortgagee's policy of title insurance ensuring that the Mortgage is a first priority lien on the Mortgaged Premises and containing such terms and endorsements as Lender and its counsel may require. G. Borrower shall obtain and provide to Lender a letter of opinion from its legal counsel that shall be in a form acceptable to Lender. H. Borrower shall provide Lender evidence of Borrower's cash investment for the purchase of the Mortgaged Premises in an amount not less than One Hundred Fifty Eight Thousand and 00/100 ($158,000.00) Dollars. I. Borrower shall execute and deliver to Lender an amendment regarding that certain Loan Agreement dated December 4, 2002 between Borrower and Lender. J. In addition, Borrower shall execute all such other documents as Lender and its legal counsel may require for the proper documentation of the Loan. VI. AUTOMATIC EVENTS OF DEFAULT. In addition to and not in lieu of other events of default specified previously within this Agreement, the following shall also constitute automatic "Events of Default" entitling the Lender to exercise any or all of its rights under this Agreement or any instrument executed in conformity herewith (all of which together with any "Event of Default" under the Promissory Note, Mortgage, or Assignment are referred to in this Agreement as "Events of Default"): A. Any material event or condition of default (however defined) by Borrower shall occur and the applicable cure period, if any, shall have expired, in any promissory note or any agreement between Borrower and Lender, including but not limited to that certain Revolving Line of Credit Promissory Note dated December 4, 2002 and that certain Loan Agreement dated December 4, 2002 between Borrower and Lender; or B. Borrower's failure to comply with any of the provisions of the Promissory Note including without limitation the failure to make any payment on the Promissory Note whether principal, interest, premium or late charge, when and as the same becomes due (whether at the stated maturity or at a date fixed for any installment payment or any accelerated payment date or otherwise) within five (5) days of the date on which such performance is due; or C. Borrower's failure to pay, perform or comply with when due any other indebtedness secured by the Mortgage; or D. Borrower's failure to comply with or perform any of the other terms, conditions or covenants of this Mortgage and such failure shall continue for a period of fifteen (15) days after notice thereof to Borrower or such longer time as may be reasonably necessary for Borrower to cure, while acting with due diligence, provided in any event that such time shall be no more than sixty (60) days; or 6 E. Borrower shall fail to pay Borrower's debts as they become due, make an assignment for the benefit of Borrower's creditors, or shall admit in writing Borrower's inability to pay its debts as they become due or shall file a petition under any chapter of the United States Bankruptcy Code or any similar law, state or federal, now or hereafter existing, or shall become "insolvent" as that term is generally defined under the United States Bankruptcy Code, or shall in any involuntary bankruptcy case commenced against it file an answer admitting insolvency or inability to pay its debts as they become due, or shall fail to obtain a dismissal of such case within sixty (60) days after its commencement or convert the case from one chapter of the United States Bankruptcy Code to another chapter, or be the subject of an order for relief in such bankruptcy case, or be adjudged a bankrupt or insolvent, or shall have a custodian, trustee or receiver appointed for, or have any court take jurisdiction of its property, or any part thereof, in any proceeding for the purpose of reorganization, arrangement, dissolution or liquidation, and such custodian, trustee or receiver shall not be discharged, or such jurisdiction shall not be relinquished, vacated or stayed within sixty (60) days of the appointment; or F. an event of default shall occur under any other instrument securing the Promissory Note and shall not have been cured within the time permitted therein to cure; or G. a judgment, writ or warrant of attachment or execution, or similar process shall be entered and become a lien or be issued or levied against the Premises and shall not be released or fully bonded within forty-five (45) days after its entry, issue or levy; or H. any material representation or warranty made by Borrower herein, in the Promissory Note or in any other instrument given as security for payment of the Indebtedness Secured Hereby or executed in conjunction with the Promissory Note shall be false, breached or dishonored; or I. the Borrower shall default under or shall fail to comply with any of the terms, conditions or provisions of the Mortgage executed in conjunction herewith. J. Borrower furnishes to the Lender any credit application or financial statement containing any information that shall prove to have been incorrect in any material respect when made. VII. ADDITIONAL COVENANTS. Borrower agrees that: A. so long as the Loan is outstanding, the Borrower shall comply with all loan financial covenants set forth in that certain Loan Agreement dated December 4, 2002 between Borrower and Lender, as amended by that certain Second Amendment and Modification of Revolving Line of Credit Loan Agreement and Reaffirmation of Guaranties of even date herewith, including but not limited to the Minimum net worth covenant, the debt to tangible net worth covenant, the current ratio covenant, the maximum capital expenditure covenant and the debt service coverage covenant. 7 B. Borrower shall pay or reimburse the Lender and its participants for all expenses, including all reasonable fees and disbursements of legal counsel (up to the maximum amount permitted by law), incurred by the Lender or any of the Lender's participants in connection with the enforcement of this Agreement or any document contemplated hereby, or in connection with the protection or enforcement of the interest and collateral security of the Lender in any litigation or bankruptcy or insolvency proceeding or the prosecution or defense of any action or proceeding relating in any way to the transactions contemplated by this Agreement. C. Borrower shall furnish to the Lender as soon as possible and in any event within ten (10) days after the Borrower has obtained knowledge of the occurrence of an event which would constitute an Event of Default hereunder or a violation of any of the covenants or obligations of the Borrower under this Agreement or which would cause any of the representations or warranties hereunder to be false or misleading in any material respect, or an event which with the giving of notice of lapse of time or both would constitute an Event of Default, which is continuing on the date of such statement, in which case the Borrower, as applicable shall deliver a signed statement setting forth details of such violation or event and the action which has been taken, are taking, or propose to take to correct the same. D. Borrower shall pay and discharge all taxes, assessments and governmental charges or levies imposed upon either Borrower or upon Borrower's income, or profits, or upon Borrower's assets or properties, prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, might become a lien or charge upon the property or assets of either the Borrower; provided, however, that the Borrower shall not be required to pay any such tax, assessment, charge, levy or claim, the payment of which is being contested in good faith and by proper proceedings and for which they shall have set aside adequate reserve therefor. E. The performance or observance of any promise or condition set forth in this Agreement may be waived in writing by the Lender, but not otherwise. No delay in the exercise of any power, right, or remedy of the Lender shall operate as a waiver thereof, nor shall any single or partial exercise thereof or the exercise of any other power, right, or remedy. F. The Lender and its participants, if any, are not general partners or joint venturers with Borrower and the Lender shall not have any liability or responsibility for any obligation, act, or omission of any of its participants. G. Any notices required to be given to Borrower by this Agreement or any of the Exhibits hereto shall be provided at the addresses listed below: WSI Industries, Inc. 213 Chelsea Road Monticello, Minnesota 55362 8 H. Borrower agrees that the Lender may at any time or from time to time, at its sole discretion and without demand and without notice to anyone, set off any liability owed to Borrower by the Lender, whether or not due, against any indebtedness owed to the Lender by Borrower (for the Loan or for any other transaction or event, including both loans retained by the Lender and loans in which the Lender has granted any person or entity a participation), whether or not due. In addition, each entity or other person holding a participating interest in any loans made to Borrower by the Lender shall have the right to appropriate or set off any deposit or other liability then owed by such entity or person to Borrower whether or not due, and apply the same to the payment of said participating interest, as fully as if such bank or person had lent directly to Borrower the amount of such participating interest. I. Notwithstanding anything to the contrary in any other document executed in conjunction herewith, any written notice required by this Agreement or any other document executed in conjunction herewith, shall be deemed received upon mailing, regular or certified mail, to the parties at the addresses listed above. J. This Agreement is being executed in and is intended to be enforced in the State of Minnesota. This Agreement and the transaction evidenced hereby shall be construed and enforced in accordance with the laws of the State of Minnesota in the State of Minnesota. K. All Exhibits to this Agreement are deemed part of the Agreement and all terms and conditions of such Exhibits are to be deemed incorporated by reference into the Agreement. L. This Agreement shall be binding upon Borrower and Borrower's successors and assigns, and shall inure to the benefit of the Lender and its participants, successors, and assigns. All rights and powers specifically conferred upon the Lender may be transferred or delegated by the Lender to any of its participants, successors, or assigns. If any provision or application of this Agreement is held unlawful or unenforceable in any respect, such illegality or unenforceability shall not affect other provisions or applications which can be given effect, and this Agreement shall be construed as if the unlawful or unenforceable provision or application had never been contained herein or prescribed hereby. All representations and warranties contained in this Agreement or in any other agreement between Borrower and the Lender shall survive the execution, delivery, and performance of this Agreement and the creation and payment of any indebtedness to the Lender. Borrower waive notice of the acceptance of this Agreement by the Lender. M. This instrument may be executed in counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall constitute one instrument. N. No failure or delay on the part of the Lender in exercising any right, power or remedy hereunder or under the Mortgage, or any other instrument binding on the Borrower shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right power or remedy hereunder or under any other agreement or instrument 9 running in favor of the Lender. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. O. No amendment, modification, termination or waiver of any provision of this Agreement, the Mortgage or the Promissory Note or consent by the Borrower to any departure therefrom shall be effective unless the same shall be in writing and signed by the Lender and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the undersigned duly authorized individuals on the day and year first written above. BORROWER: WSI INDUSTRIES, INC., a Minnesota corporation By: /s/ Paul D. Sheely ----------------------------------- Paul D. Sheely Its: Chief Financial Officer LENDER: EXCEL BANK MINNESOTA, a Minnesota banking corporation By: /s/ Daniel D. Poppe ----------------------------------- Daniel D. Poppe Its: Managing Director 10 EX-10.4 5 c85252exv10w4.txt PROMISSORY NOTE Exhibit 10.4 PROMISSORY NOTE $350,000 May 3, 2004 2.0% WSI Industries, Inc., a Minnesota corporation ("Maker"), for value received, hereby promises to pay to the Monticello Economic Development Authority, a public body corporate and politic under the laws of Minnesota or its assigns (Authority and any assigns are collectively referred to herein as "Holder"), at its designated principal office or such other place as the Holder may designate in writing, the principal sum of Three Hundred Fifty Thousand and no/100th Dollars ($350,000) or so much thereof as may be advanced under this Note, with interest as hereinafter provided, in any coin or currency that at the time or times of payment is legal tender for the payment of private debts in the United States of America. The principal of and interest on this Note is payable in installments due as follows: 1. Interest at the rate of two percent (2.0%) per annum shall accrue from the Loan Closing Date, as defined in the loan agreement of even date between Borrower and Lender ("Loan Agreement") until the Loan is repaid in full. 2. Payments of principal and interest shall commence on June 3, 2004 (the "Initial Payment Date") and continue on the third day of each and every month thereafter until paid in full. The entire remaining unpaid balance of principal and interest shall be due and payable on the first day of the sixtieth (60th) month following the Initial Payment Date.. 3. The Maker shall have the right to prepay the principal of this Note, in whole or in part, on any date a principal and interest payment is due and payable. 4. This Note is given pursuant to the Loan Agreement and is secured by a mortgage of even date herewith delivered by WSI Industries, Inc. (the "Mortgage") of even date herewith delivered by Borrower. If either the Loan Agreement or the Mortgage are found to be invalid for whatever reason, such invalidity shall constitute an Event of Default hereunder. All of the agreements, conditions, covenants, provisions, and stipulations contained in the Loan Agreement, the Mortgage, or any other instrument securing this Note are hereby made a part of this Note to the same extent and with the same force and effect as if they were fully set forth herein. It is agreed that time is of the essence of this Note. If an Event of Default occurs under the Loan Agreement, the Mortgage, or any other instrument securing this Note, then the Holder of this Note may at its right and option, without notice, declare immediately due and payable the principal balance of this Note and interest accrued thereon, together with reasonable attorneys fees and expenses incurred by the Holder of this Note in collecting or enforcing payment hereof, whether by lawsuit or otherwise, and all other sums due hereunder or any instrument securing this Note. The Maker of this Note Exhibit 10.4 agrees that the Holder of this Note may, without notice to and without affecting the liability of the Maker, accept additional or substitute security for this Note, or release any security or any party liable for this Note or extend or renew this Note. 5. The remedies of the Holder of this Note as provided herein, and in the Loan Agreement, the Guaranty, or any other instrument securing this Note shall be cumulative and concurrent and may be pursued singly, successively, or together, and, at the sole discretion of the Holder of this Note, 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. The Holder of this Note 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. This Note may not be amended, modified, or changed except only by an instrument in writing signed by the party against whom enforcement of any such amendment, modifications, or change is sought. 6. If any term of this Note, or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Note, or the application of such term to persons or circumstances other than those to which it is invalid or unenforceable shall not be affected thereby, and each term of this Note shall be valid and enforceable to the fullest extent permitted by law. 7. It is intended that this Note is made with reference to and shall be construed as a Minnesota contract and is governed by the laws thereof. Any disputes, controversies, or claims arising out of this Agreement shall be heard in the state or federal courts of Minnesota, and all parties to this Agreement waive any objection to the jurisdiction of these courts, whether based on convenience or otherwise. 8. The performance or observance of any promise or condition set forth in this Note may be waived, amended, or modified only by a writing signed by the Maker and the Holder. No delay in the exercise of any power, right, or remedy operates as a waiver thereof, nor shall any single or partial exercise of any other power, right, or remedy. 9. IT IS HEREBY CERTIFIED AND RECITED that all conditions, acts, and things required to exist, happen, and be performed precedent to or in the issuance of this Note do exist, have happened, and have been performed in regular and due form as required by law. Exhibit 10.4 IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed as of the 3rd day of May, 2004. WSI INDUSTRIES, INC. By: /s/ Paul D. Sheely -------------------------- Title: Chief Financial Officer [SIGNATURE PAGE FOR PROMISSORY NOTE - WSI INDUSTIES, INC. ] EX-10.5 6 c85252exv10w5.txt LOAN AGREEMENT Exhibit 10.5 LOAN AGREEMENT This Loan Agreement ("Agreement") is made this 3rd day of May, 2004, by WSI Industries, Inc., a Minnesota corporation ("Borrower") and the Monticello Economic Development Authority ("Lender"), a public body corporate and politic under the laws of Minnesota. RECITALS A. In consideration for the loan contemplated by this Agreement, Borrower is executing and delivering to Lender this Loan Agreement. B. Lender agrees to loan to Borrower the maximum amount of $350,000 to finance the real estate property including acquisition of a vacant 49,000 square foot manufacturing building ("Project Costs") that is located at 213 Chelsea Road ("Property") in the City of Monticello, Minnesota (the "City"). ACCORDINGLY, to induce Lender to make the Loan to Borrower, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. The Loan Amount. Subject to and upon the terms and conditions of this Agreement, Lender agrees to loan to Borrower the sum of Three Hundred Fifty Thousand and no/100th Dollars ($350,000), or so much thereof as is disbursed to Borrower in accordance with this Agreement ("Loan"). The Loan shall be evidenced by a promissory note ("Note") payable by Borrower to Lender and substantially in the form of Exhibit A attached to this Agreement, which shall be dated as of the date of this Agreement. Proceeds of the Loan shall be disbursed in accordance with Section 3 hereof. 2. Repayment of Loan. The Loan shall be repaid with interest as follows: (a) Interest at the rate of two percent (2.0%) per annum shall accrue from the Loan Closing Date (as hereinafter defined) until the Loan is repaid in full. (b) Payments of principal and interest shall commence on June 3, 2004 (the "Initial Payment Date") and continue on the third day of each and every month thereafter until paid in full. Such payments shall fully amortize any outstanding balance of the Loan over twenty-five (25) years; provided, however, the entire remaining unpaid balance of principal and interest shall be due and payable on the first day of the sixtieth (60th) month following the Initial Payment Date. 1 3. Disbursement of Loan Proceeds. (a) The Loan proceeds shall be paid to Borrower on May 3rd, 2004 or such other date as the parties hereto agree ("Loan Closing Date"). (b) The following events shall be conditions precedent to the payment of the Loan proceeds to Borrower on the Loan Closing Date: (i) Borrower having executed and delivered to Lender, prior to the Loan Closing Date and without expense to Lender, executed copies of this Agreement and the Note, and Borrower further having caused to be executed and delivered to Lender a guaranty in substantially the form set forth hereto at Exhibit B (the "Guaranty") ; (ii) Borrower having provided evidence satisfactory to Lender that Borrower has established a separate accounting system for the exclusive purpose of recording the receipt and expenditure of the Loan proceeds; and (iii) Borrower having paid $200 to Lender as a loan origination fee; and (iv) Borrower having paid to Lender the full amount of the legal fees incurred by Lender in the negotiation and preparation of this Agreement and any other agreement or instrument securing the Loan. (v) Borrower having provided evidence satisfactory to Lender that Borrower has obtained adequate financing to complete all activities related to Borrower's undertakings on the Property. 4. Representations and Warranties. Borrower represents and warrants to Lender that: (a) Borrower is duly authorized and empowered to execute, deliver, and perform this Agreement and to borrow money from Lender. (b) The execution and delivery of this Agreement, and the performance by Borrower of its obligations hereunder, do not and will not violate or conflict with any provision of law and do not and will not violate or conflict with, or cause any default or event of default to occur under, any agreement binding upon Borrower. (c) The execution and delivery of this Agreement has been duly approved by all necessary action of Borrower, and this Agreement has in fact been duly executed and delivered by Borrower and constitutes its lawful and binding obligation, legally enforceable against it. (d) Borrower warrants that it shall keep and maintain books, records, and other documents relating directly to the receipt and disbursements of Loan proceeds and that any 2 duly authorized representative of Lender shall, at all reasonable times, have access to and the right to inspect, copy, audit, and examine all such books, records, and other documents of Borrower pertaining to the Loan until the completion of all closeout procedures and the final settlement and conclusion of all issues arising out of this Loan. (e) Borrower warrants that it has fully complied with all applicable state and federal laws pertaining to its business and will continue to comply throughout the terms of this Agreement. If at any time Borrower receives notice of noncompliance from any governmental entity, Borrower agrees to take any necessary action to comply with the state or federal law in question. (f) Borrower warrants that it will use the proceeds of the Loan made by Lender solely for the Project Costs. (g) Borrower warrants that it will not create, permit to be created, or allow to exist any liens, charges, or encumbrances prior to the obligation created by this Loan Agreement, except as otherwise authorized in writing by Lender. 5. Event of Default by Borrower. The following shall be Events of Default under this Agreement: (a) failure to pay any principal or interest on the Loan when due; (b) any representation or warranty made by Borrower herein or in any document, instrument, or certificate given in connection with this Agreement or the Note is false when made; (c) Borrower fails to pay its debts as they become due, makes an assignment for the benefit of its creditors, admits in writing its inability to pay its debts as they become due, files a petition under any chapter of the Federal Bankruptcy Code or any similar law, state or federal, now or hereafter existing, becomes "insolvent" as that term is generally defined under the Federal Bankruptcy Code, files an answer admitting insolvency or inability to pay its debts as they become due in any involuntary bankruptcy case commenced against it, or fails to obtain a dismissal of such case within sixty (60) days after its commencement or convert the case from one chapter of the Federal Bankruptcy Code to another chapter, or be the subject of an order for relief in such bankruptcy case, or be adjudged a bankrupt or insolvent, or has a custodian, trustee, or receiver appointed for, or has any court take jurisdiction of its property, or any part thereof, in any proceeding for the purpose of reorganization, arrangement, dissolution, or liquidation, and such custodian, trustee, or receiver is not discharged, or such jurisdiction is not relinquished, vacated, or stayed within sixty (60) days of the appointment; (d) a garnishment summons or writ of attachment is issued against or served upon Lender for the attachment of any property of Borrower in Lender's possession or any indebtedness owing to Borrower, unless appropriate papers are filed by Borrower contesting 3 the same within thirty (30) days after the date of such service or such shorter period of time as may be reasonable in the circumstances; (e) any breach or failure of Borrower to perform any other term or condition of this Agreement not specifically described as an Event of Default in this Agreement and such breach or failure continues for a period of thirty (30) days after Lender has given written notice to Borrower specifying such default or breach, unless Lender agrees in writing to an extension of such time prior to its expiration; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, Lender will not unreasonably withhold its consent to an extension of such time if corrective action is instituted by Borrower within the applicable period and is being diligently pursued until the Default is corrected, but no such extension shall be given for an Event of Default that can be cured by the payment of money (i.e., payment of taxes, insurance premiums, or other amounts required to be paid hereunder); (f) any breach by Borrower of any other agreement between Borrower, and Lender or the City of Monticello, Minnesota. 6. Business Subsidy Agreement. The provisions of this Section constitute the "business subsidy agreement" between Borrower and Lender for the purposes of Minnesota Statutes, Section 116J.993-.995 (the "Business Subsidy Act"). (a) General Terms. The parties agree and represent to each other as follows: (1) The subsidy provided to Borrower by Lender consists of the Loan made pursuant to this Agreement. (2) The public purposes of the subsidy are to promote development of a precision machining and job shop manufacturing company in the City, increase high quality job growth in the City, stabilize the economic base of the community, and retain the tax base of a vacant building in the City and the State. (3) The goals for the subsidy are: to retain the minimum improvements of a vacant building; to maintain such improvements as a precision machining and job manufacturing facility for at least five years as described in clause (6) below; and to create the jobs and wage levels in accordance with Section 6(b) hereof. (4) If the goals described in clause (3) are not met, such failure to meet the goals will constitute an Event of Default on the part of Borrower. (5) The subsidy is needed because costs make the Project infeasible without public assistance and the Loan provides needed gap financing. (6) Borrower must continue operation on the Property of a precision machining and job shop manufacturing facility for at least five years after the date of May 3, 2004. 4 (7) Borrower does not have a parent corporation. (8) Borrower does not expect to receive any additional public assistance in connection with the Property in addition to the assistance provided under this Agreement. Excel Bank will provide private financing for the Property. (b) Job and Wage Goals. Within two years after the first date on which any funds are disbursed pursuant to this Agreement (the "Compliance Date"), Borrower shall cause to be created at least 46 new full-time equivalent jobs on the Development Property (the "New Jobs") and shall cause the wages for the New Jobs to be as follows: (i) at least 3 News Job shall pay no less than $12.00 per hour, exclusive of benefits; (ii) at least 11 New Jobs shall pay no less than $14.00 per hour excluding benefits; (iii) at least 5 New Jobs shall pay no less than $16.00; (iv) at least 7 New Jobs shall pay no less than $18.00 per hour; (v) at least 4 New Jobs shall pay no less than $20.00 per hour excluding benefits; and (vi) at least 16 New Jobs shall pay no less than $22.00 per hour excluding benefits. (c) Remedies. If Borrower fails to meet the goals described in Section 6(a)(3), Borrower shall repay (1) to Lender upon written demand from Lender a "pro rata share" of the amount of any disbursements made to Borrower hereunder and (2) interest on the amounts in clause (1) at the implicit price deflator as defined in Minnesota Statutes, Section 116J.994, subd. 6, accrued from the date of May 3, 2004 to the date of payment. The term "pro rata share" means percentages calculated as follows: (i) if the failure relates to the number of jobs, the jobs required less the New Jobs created, divided by the jobs required; (ii) if the failure relates to wages, the number of jobs required less the number of jobs that meet the required wages, divided by the number of jobs required; (iii) if the failure relates to maintenance of the Minimum Improvements in accordance with Section 6(a)(6), 60 less the number of months of operation as a precision machining and job shop manufacturing facility (where any month in which the facility is in operation for at least 15 days constitutes a month of operation), commencing on the date of May 3, 2004 and ending with the date the facility ceases operation as determined by Lender, divided by 60; and (iv) if more than one of clauses (i) through (iii) apply, the sum of the applicable percentages, not to exceed 100%. Nothing in this Section shall be construed to limit Lender's other remedies hereunder. In addition to the remedy described in this Section and any other remedy available to Lender for failure to meet the goals stated in Section 6(a)(3), Borrower agrees and understands that it may not receive a business subsidy from Lender or any other "grantor" (as defined in the Business Subsidy 5 Act) for a period of five years from the date of the failure or until Borrower satisfies its repayment obligation under this Section, whichever occurs first. (d) Reports. Borrower must submit to Lender a written report regarding business subsidy goals and results by no later than January 25 of each year, commencing January 25, 2005 and continuing until the later of: (i) the date the goals stated Section 6(a)(3) are met; or (ii) if the goals are not met, the date the Loan is repaid in full. The report must comply with Section 116J.993-.995, subdivision 7 of the Business Subsidy Act. Lender will provide information to Borrower regarding the required forms. If Borrower fails to timely file any report required under this Section, Lender will mail Borrower a warning within one week after the required filing date. If, after 14 days of the postmarked date of the warning, Borrower fails to provide a report, Borrower must pay to Lender a penalty of $100 for each subsequent day until the report is filed. The maximum aggregate penalty payable under this Section $1,000. (e) Audits. Upon written request of Lender or City in any year, Borrower shall retain at its expense an independent, third party accountant to audit any job and wage report submitted by Borrower under paragraphs (d) or (f) of this Section. Borrower must deliver to Lender a written report from the accountant promptly upon completion of such audit. 7. Lender's Remedies upon Borrower's Default. Upon an Event of Default by Borrower and after provision by Lender of written notice, Lender shall have the right to exercise any or all of the following remedies (and any other rights and remedies available to it): (a) declare the principal amount of the Loan and any accrued interest thereon to be immediately due and payable upon providing written notice to Borrower; (b) suspend its performance under this Loan Agreement; (c) take any action provided for at law to enforce compliance by Borrower with the terms of this Agreement and the Note; (d) exercise its rights under the Guaranty; and (e) exercise its rights under the Mortgage. In addition to any other amounts due on the Loan, and without waiving any other right of Lender under any this Agreement or any other instrument securing the Loan applicable documents, Borrower shall pay to Lender a late fee of $250 for any payment not received in full by Lender within 30 calendar days of the date on which it is due. Furthermore, interest will continue to accrue on any amount due until the date on which it is paid to Lender, and all such interest will be due and payable at the same time as the amount on which it has accrued. 8. Lender's Costs of Enforcement of Agreement. If an Event of Default has occurred as provided herein, then upon demand by Lender, Borrower shall pay or reimburse Lender for all expenses, including all attorneys fees and expenses incurred by Lender in connection with the 6 enforcement of this Agreement and the Note, or in connection with the protection or enforcement of the interests and collateral security of Lender in any litigation or bankruptcy or insolvency proceeding or in any action or proceeding relating in any way to the transactions contemplated by this Agreement. 9. Indemnification. (a) Borrower shall and does hereby agree to protect, defend, indemnify and hold Lender, and its officers, agents, and employees, harmless of and from any and all liability, loss, or damage that it may incur under or by reason of this Agreement, and of and from any and all claims and demands whatsoever that may be asserted against Lender by reason of any alleged obligations or undertakings on its part to perform or discharge any of the terms, covenants, or agreements contained herein. (b) Should Lender, or its officers, agents, or employees incur any such liability or be required to defend against any claims or demands pursuant to Section 9, or should a judgment be entered against Lender, the amount thereof, including costs, expenses, and attorneys fees, shall bear interest thereon at the rate then in effect on the Note, shall be secured hereby, shall be added to the Loan, and Borrower shall reimburse Lender for the same immediately upon demand, and upon the failure of Borrower to do so, Lender may declare the Loan immediately due and payable. (c) This indemnification and hold harmless provision shall survive the execution, delivery, and performance of this Agreement and the creation and payment of any indebtedness to Lender. Borrower waives notice of the acceptance of this Agreement by Lender. (d) Nothing in this Agreement shall constitute a waiver of or limitation on any immunity from or limitation on liability to which Borrower is entitled under law. 10. Miscellaneous. (a) Waiver. The performance or observance of any promise or condition set forth in this Agreement may be waived, amended, or modified only by a writing signed by Borrower and Lender. No delay in the exercise of any power, right, or remedy operates as a waiver thereof, nor shall any single or partial exercise of any other power, right, or remedy. (b) Assignment. This Agreement shall be binding upon Borrower and its successors and assigns and shall inure to the benefit of Lender and its successors and assigns. All rights and powers specifically conferred upon Lender may be transferred or delegated by Lender to any of its successors and assigns. Borrower's rights and obligations under this Agreement may be assigned only when such assignment is approved in writing by Lender. (c) Governing Law. This Agreement is made and shall be governed in all 7 respects by the laws of the state of Minnesota. Any disputes, controversies, or claims arising out of this Agreement shall be heard in the state or federal courts of Minnesota, and all parties to this Agreement waive any objection to the jurisdiction of these courts, whether based on convenience or otherwise. (d) Severability. If any provision or application of this Agreement is held unlawful or unenforceable in any respect, such illegality or unenforceability shall not affect other provisions or applications that can be given effect, and this Agreement shall be construed as if the unlawful or unenforceable provision or application had never been contained herein or prescribed hereby. (e) Notice. All notices required hereunder shall be given by depositing in the U.S. mail, postage prepaid, certified mail, return receipt requested, to the following addresses (or such other addresses as either party may notify the other): To Lender: Monticello Economic Development Authority 505 Walnut Street Suite 1 Monticello, MN 55362 Attn: Executive Director To Borrower: WSI Industries, Inc. 213 Chelsea Road Monticello, MN 55362 (f) Termination. If the Loan is not disbursed pursuant to this Agreement by October 20, 2004, this Agreement shall terminate and neither party shall have any further obligation to the other, except that if the Loan is not disbursed because Borrower has failed to use its best efforts to comply with the conditions set forth in Section 3 of this Agreement then Borrower shall pay to Lender all reasonable attorneys fees, costs, and expenses incurred by Lender in connection with this Agreement and the Note. (g) Entire Agreement. This Agreement, together with the Exhibits hereto, which are incorporated by reference, constitutes the complete and exclusive statement of all mutual understandings between the parties with respect to this Agreement, superseding all prior or contemporaneous proposals, communications, and understandings, whether oral or written, concerning the Loan. (h) Headings. The headings appearing at the beginning of the several sections contained in this Agreement have been inserted for identification and reference purposes only and shall not be used in the construction and interpretation of this Agreement. 8 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the proper officers thereunto duly authorized on the day and year first written above. MONTICELLO ECONOMIC DEVELOPMENT AUTHORITY By: /s/ Ronald Hoglund -------------------------- Title: President By: /s/ Ollie Koropchak -------------------------- Title: Executive Director [SIGNATURE PAGE TO LOAN AGREEMENT - WSI INDUSTRIES, INC.] 9 WSI INDUSTRIES, INC. By: /s/ Paul D. Sheely -------------------------- Title: Chief Financial Officer [SIGNATURE PAGE TO LOAN AGREEMENT - WSI INDUSTRIES, INC. ] 10 EX-10.6 7 c85252exv10w6.txt MORTGAGE AND SECURITY AGREEMENT EXHIBIT 10.6 MORTGAGE AND SECURITY AGREEMENT AND FIXTURE FINANCING STATEMENT THIS INDENTURE (hereinafter referred to as "Mortgage"), is made this 3rd day of May 2004 by WSI Industries, Inc., a Minnesota corporation ("Mortgagor"), whose post office address is 213 Chelsea Road, Monticello, Minnesota 55362 and Excel Bank Minnesota, a Minnesota banking corporation ("Mortgagee"), whose post office address is 50 South Sixth Street, Suite 1000, Minneapolis MN 55402. WITNESSETH, that the said Mortgagor in consideration of the debt hereinafter described and the sum of One and No/100 Dollar ($1.00) to the Mortgagor in hand paid by the said Mortgagee, the receipt whereof is hereby acknowledged, does hereby MORTGAGE, GRANT, BARGAIN, SELL AND CONVEY unto said Mortgagee, its successors and assigns, forever, AND GRANTS TO THE MORTGAGEE A SECURITY INTEREST IN all of the following properties hereinafter set forth (all of the following being hereafter collectively referred to as the "Premises"). THE MAXIMUM PRINCIPAL INDEBTEDNESS SECURED HEREBY IS ONE MILLION THREE HUNDRED AND SIXTY THOUSAND AND 00/100 ($1,360,000.00) DOLLARS. A. REAL PROPERTY All the tracts or parcels of real property lying and being in the County of Wright, State of Minnesota, all as more fully described in Exhibit "A" attached hereto and made a part hereof, together with all the estates and rights in and to the real property and in and to lands lying in streets, alleys and roads adjoining the real property and all buildings, structures, improvements, fixtures and annexations, access rights, easements, rights of way or use, servitudes, licenses, tenements, hereditaments and appurtenances now or hereafter belonging or pertaining to the real property; and B. PERSONAL PROPERTY All buildings, improvements, fixtures, fittings and furnishings, owned by Mortgagor and now or hereafter attached to, located at or placed in the improvements on the Premises including, without limitation (i) all machinery, fittings, fixtures, apparatus, equipment or articles used to supply heating, gas, electricity, air conditioning, water, light, waste disposal, power, refrigeration, ventilation, and fire and sprinkler protection, (ii) all maintenance supplies and repair equipment, (iii) all draperies, carpeting, floor coverings, screens, storm windows and window coverings, blinds, awnings, shrubbery and plants, (iv) all elevators, escalators and shafts, motors, machinery, fittings and supplies necessary for their use, (v) all building materials and supplies now or hereafter delivered to the Premises (it being understood that the enumeration of any specific articles of property shall in no way be held to exclude any items of property not specifically enumerated), as well as renewals, replacements, proceeds, additions, accessories, increases, parts, fittings, insurance payments, awards and substitutes thereof, together with all interest of Mortgagor in any such items hereafter acquired, as well as the Mortgagor's interest in any lease, or conditional sales agreement under which the same is acquired, all of which property mentioned herein shall be deemed fixtures and accessory to the freehold and a part of the realty and not severable in whole or in part without material injury to the Premises, (vi) all plans and specifications now or hereafter prepared and used in the Premises by any contractor or by others, and all surveys, site drawings, drawings and papers related thereto, as well as any and all design documents prepared and delivered in connection with the Premises, (vii) each contract or agreement for the design, construction and equipping of the improvements located or to be located on the Premises, together with all rights, title and interest of Mortgagor in and to any existing or future changes, extensions, revisions, modifications, guarantees or performance, or warranties of any kind thereunder including any contract between the mortgagor, as owner, and any third party, as contractor, and/or all of Mortgagor's right, title or interest in any architect, as project architect, for the construction of any of the improvements on the Premises, and/or such contracts between the Mortgagor, as owner, and any architect, as project architect, for the providing of design and architectural services to the Premises, (viii) all soil reports, building permits, variances, licenses, utility permits, and other permits related to the construction of improvements on the Premises or maintenance of the Premises, including without limitation, all warranties and contract rights, and (ix) all rights and interests of Mortgagor in and under any and all service agreements and other agreements relating to the operation, maintenance, repair of the Premises and the buildings and improvements thereon; and C. RENTS, LEASES AND PROFITS All rents, income, contract rights, leases and profits now due or which may hereafter become due under or by virtue of any lease, license, sublease, or agreement, whether written or verbal, for the use or occupancy of the Premises or any part thereof together with all tenant security deposits; and 2 D. JUDGMENTS AND AWARDS All awards, compensation and settlements in lieu therefore made as a result of the taking by power of eminent domain of the whole or any part of the Premises, including any awards for damages sustained to the Premises, for a temporary taking, change of grade of streets or taking of access. TO HAVE AND TO HOLD THE SAME, together with the possession and right of possession of the Premises, unto the Mortgagee, its successors and assigns, forever. PROVIDED NEVERTHELESS, that if the Mortgagor, its successors or assigns, shall pay to the Mortgagee, its successors or assigns, the sum of One Million Three Hundred and Sixty Thousand and 00/100 ($1,360,000.00) Dollars, according to the terms of that certain promissory note in said principal amount of even date herewith ("Note") executed by the Mortgagor and payable to the Mortgagee, the terms and conditions of which are incorporated herein by reference and made a part hereof, together with any extensions, amendments, modifications or renewals thereof, due and payable with interest thereon at the initial rate of five and thirty-seven one hundredths (5.37%) percent per annum, and as such rate may thereafter be adjusted in accordance with the terms of the Note, the balance of said principal sum together with interest thereon being due and payable in any event on May 1, 2014 and shall repay to the Mortgagee, its successors or assigns, at the times demanded and with interest thereon at the interest rate then in effect on the Note, all sums advanced in protecting the lien of this Mortgage, in payment of taxes on the Premises, in payment of insurance premiums covering improvements thereon, in payment of principal and interest on prior liens, in payment of expenses and attorneys' fees herein provided for and all sums advanced for any other purpose authorized herein, (the Note and all such sums, together with interest thereon, being collectively referred to as the "Indebtedness Secured Hereby") and shall keep and perform all of the covenants and agreements herein contained, then this Mortgage shall become null and void, and shall be released at Mortgagor's expense. AND IT IS FURTHER COVENANTED AND AGREED AS FOLLOWS: ARTICLE ONE GENERAL COVENANTS, AGREEMENTS, WARRANTIES 1.1 PAYMENT OF INDEBTEDNESS: OBSERVANCE OF COVENANTS. Mortgagor will duly and punctually pay each and every installment of principal and interest on the Note and all other Indebtedness Secured Hereby, as and when the same shall become due, and shall duly and punctually perform and observe all of the covenants, agreements and provisions contained herein, in the Note and any other instrument given as security for the payment of the Indebtedness Secured Hereby or in conjunction with the Note. 1.2 MAINTENANCE AND REPAIRS. Mortgagor shall not abandon the Premises, shall keep and maintain the Premises in good condition, repair and operating condition free from any waste or misuse, and shall promptly repair or restore any buildings, improvements or structures now or hereafter on the Premises which may become damaged or destroyed to their condition prior to any such damage or destruction. Mortgagor further agrees that without the prior consent of the 3 Mortgagee it will not expand any improvements on the Premises, erect any new improvements or make any material alterations in any improvements which shall alter the basic structure, affect the market value or change the existing architectural character of the Premises, nor remove or demolish any improvements and shall complete within a reasonable time any buildings now or at any time in the process of erection on the Premises. 1.3 COMPLIANCE WITH LAWS. Mortgagor shall comply with all requirements of law, municipal ordinances and regulations affecting the Premises, shall comply with all private restrictions and covenants affecting the Premises and shall not acquiesce in or seek any rezoning classification affecting the property. 1.4 PAYMENT OF OPERATING COSTS: PRIOR MORTGAGES AND LIENS. Mortgagor shall pay all operating costs and expenses of the Premises, shall keep the Premises free from levy, attachment, mechanic's, materialmen's and other liens ("Liens") and shall pay when due all indebtedness which may be secured by mortgage, lien or charge on the Premises. 1.5. PAYMENT OF IMPOSITIONS. Mortgagor shall pay when due and in any event before any penalty attaches all taxes, assessments, governmental charges, 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 Premises or any interest therein ("Impositions") and will upon demand furnish to the Mortgagee proof of the 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 the Mortgagor, or changing in any way the laws relating to the taxation of mortgages or debts secured by mortgages or a mortgagee's interest in mortgaged premises, so as to impose such Imposition on the Mortgagee or on the interest of the Mortgagee in the Premises then, in any such event, Mortgagor shall bear and pay the full amount of such Imposition, provided that if for any reason payment by Mortgagor of any such Imposition would be unlawful, or if the payment thereof would constitute usury or render the Indebtedness Secured Hereby wholly or partially usurious, 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 Mortgagee, at its option, may pay that amount or portion of such Impositions as renders the Indebtedness Secured Hereby unlawful or usurious, in which event Mortgagor shall concurrently therewith pay the remaining lawful and non-usurious portion or balance of said imposition. 1.6 CONTEST OF IMPOSITIONS, LIENS AND LEVIES. Mortgagor shall not be required to pay, discharge or remove any Impositions, 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 Imposition so contested and the sale of the Premises, or any part thereof to satisfy the same, provided that the Mortgagor shall, prior to the date such Imposition is due and payable, have given such reasonable security as may be demanded by the Mortgagee to insure such payments and prevent any sale or forfeiture of the Premises 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 Imposition so determined, together with all interest and penalties that may be payable in connection therewith. 4 Notwithstanding the provisions of this Section, Mortgagor shall (and if Mortgagor shall fail to do so, Mortgagee may, but shall not be required to) pay any such Imposition notwithstanding such contest if in the reasonable opinion of the Mortgagee, the Premises shall be in jeopardy or in danger of being forfeited or foreclosed. 1.7 PROTECTION OF SECURITY. Mortgagor agrees to promptly notify Mortgagee of and appear in and defend any suit, action or proceeding that affects the value of the Premises, the Indebtedness Secured Hereby or the rights or interest of Mortgagee hereunder. The Mortgagee may elect to appear in or defend any such action or proceeding and Mortgagor agrees to indemnify and reimburse Mortgagee from any and all loss, damage, expense or cost arising out of or incurred in connection with any such suit, action or proceeding, including costs of evidence of title and reasonable attorneys' fees and costs. 1.8 ANNUAL STATEMENTS. Mortgagor shall within ninety (90) days after the end of each fiscal year furnish to the Mortgagee audited financial and operating statements of the Mortgagor for such fiscal year, including a balance sheet and a profit and loss statement, all in reasonable detail and conforming to generally accepted accounting principles. Mortgagor shall also within thirty (30) days after the end of each month year furnish to the Mortgagee the interim financial statements of the Mortgagor. All such financial statements shall be prepared and certified by the Mortgagor to the satisfaction of the Mortgagee at the expense of Mortgagor. In the event Mortgagor fails to furnish any such financial statements, the Mortgagee may cause an audit to be made of the respective books and records at the sole cost and expense of the Mortgagor (and Mortgagee may add the expenses of such audit to the Loan) or otherwise declare an Event of Default hereunder. Mortgagee also shall have the right to examine at their place of safekeeping at reasonable times all books, accounts and records relating to the business operations of the Mortgagor and the operation of the Premises. 1.9 ADDITIONAL ASSURANCES. Mortgagor agrees upon reasonable request by the Mortgagee to execute and deliver such further instruments, financing statements under the Uniform Commercial Code and assurances and will do such further acts as may be necessary or proper to carry out more effectively the purposes of this Mortgage and without limiting the foregoing, to make subject to the lien hereof any property agreed to be subjected hereto or covered by the granting clause hereof, or intended so to be. Mortgagor agrees to pay any recording fees, filing fees, taxes or other charges arising out of or incident to the filing or recording of the Mortgage, such further assurances and instruments and the issuance and delivery of the Note. 1.10 HAZARDOUS MATERIALS. Mortgagor covenants, represents and warrants to Mortgagee, its successors and assigns, that except as otherwise disclosed in the Phase I Environmental Report delivered to Mortgagee in conjunction herewith, the Premises as existing and to the best of Mortgagor's knowledge, all prior uses of the Premises comply and have at all times complied with, and Mortgagor is not in violation of, has not violated and will not violate, in connection with the ownership, use, maintenance or operation of the Premises and the conduct of the business related thereto, any applicable federal, state, county or local statutes, laws regulations, rules, ordinances, codes, standards, orders, licenses and permits of any governmental authorities relating to environmental matters (being hereinafter collectively referred to as the "Environmental Laws"), including by way of illustration and not by way of limitation: The Comprehensive 5 Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. Section 1802 et seq.; the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq.; the Clean Water Act, 33 U.S.C. Section 1321 et seq.; the Clean Air Act, 42 U.S.C. Section 7401 et seq.; the Minnesota Environmental Response and Liability Act, Minn. Stat. Chap. 115B; the Minnesota Petroleum Tank Release Cleanup Act, Minn. Stat. Chap. 115C; and any other federal, state, county, municipal or local statute, law, ordinance or regulation that relates to or deals with human health or the environment, all as may from time to time be amended, and including any rules, regulations, standards or guidelines issued pursuant to any of said Environmental Laws, and (b) all other applicable environmental standards or requirements. Without limiting the generality of the foregoing: i) Mortgagor, its agents, employees and independent contractors, (a) has and will operate the Premises and has and at all times will receive, handle, use, store, treat, transport and dispose of all petroleum products and all other toxic dangerous or hazardous chemicals, materials, substances, pollutants and wastes, and any chemical, material or substance exposure to which is prohibited, limited or regulated by any federal, state, county, regional or local authority or which even if not so prohibited, limited or regulated, may or could pose a hazard to the health and safety of the occupants of the Premises or the occupants and/or owners of property near the Premises (all the foregoing being hereinafter collectively referred to as "Hazardous Materials") in strict compliance with all applicable environmental, health or safety statutes, ordinances, orders, rules, standards, regulations or requirements, and (b) except as specifically consented to by Mortgagee in writing, has removed or will remove from the Premises all Hazardous Materials; ii) there are no existing or pending statutes, orders, standards, rules or regulations relating to environmental matters requiring any remedial actions or other work, repairs, construction or capital expenditures with respect to the Premises, nor has Mortgagor received any notice of any of the same, except as Mortgagor has specifically advised Mortgagee in a writing to which Mortgagee has given specific written consent; iii) no Hazardous Materials will be or to the best of Mortgagor's knowledge have been released into the environment, or will be or to the best of Mortgagor's knowledge have been deposited, spilled, discharged, placed or disposed of at, on or near the Premises, nor has or will the Premises be used at any time by any person as a landfill or a disposal site for Hazardous Materials or for garbage, waste or refuse of any kind; iv) there are no electrical transformers or other equipment containing dielectric fluid containing polychlorinated biphenyls located in, on or under the Premises, nor is there any friable asbestos contained in, on or under the Premises, nor will Mortgagor permit the installation of same; v) there are no locations off the Premises where Hazardous Materials generated by or on the Premises have been treated, stored, deposited or disposed of; vi) there is no fact pertaining to the physical condition of either the Premises or the area surrounding the Premises of which Mortgagor has knowledge (a) which Mortgagor has not disclosed to Mortgagee in writing prior to the date of this Mortgage, and (b) which materially adversely affects or will materially adversely affect the Premises or the use or enjoyment or the value thereof, or Mortgagor's ability to perform the transactions contemplated by this Mortgage; vii) no notices of any violation of any of the matters referred to in the foregoing sections relating to the Premises or its use have been received by Mortgagor and there are no writs, injunctions, decrees, orders or judgments outstanding, no lawsuits, claims, proceedings or investigations pending or threatened, relating to the ownership, use, maintenance or operation of the Premises, nor is there any basis for any such lawsuit, claim, proceeding or investigation being instituted or filed, and viii) the Premises is not listed in the United States Environmental Protection Agency's National Priorities List of Hazardous 6 Waste Sites nor any other log, list, schedule, inventory or record of Hazardous Materials or Hazardous Waste sites whether maintained by the United States, any state or local governmental unit. The Mortgagor agrees to indemnify and reimburse the Mortgagee, its successors and assigns, for any breach of these representations and warranties and from any loss, damage, expense or cost arising out of or incurred by Mortgagee which is the result of a breach of, misstatement of or misrepresentation of the above covenants, representations and warranties, or for any loss, damage, expense or cost sustained as a result of their being located on the Premises any Hazardous Materials or dangerous, toxic or hazardous pollutants, chemicals, wastes or substances, together with all attorneys' fees incurred in connection with the defense of any action against the Mortgagee arising out of the above. These covenants, representations, warranties and indemnities shall be deemed continuing covenants, representations, warranties and indemnities running with the Land for the benefit of the Mortgagee, and any successors and assigns of the Mortgagee, including any purchaser at a mortgage foreclosure sale, any transferee of the title of the Mortgagee or any subsequent purchaser at a foreclosure sale, and any subsequent owner of the Premises claiming through or under the title of Mortgagee and shall survive any foreclosure of this Mortgage and any acquisition of title of Mortgagee. The amount of all such indemnified loss, damage, expense or cost, shall bear interest thereon at the rate of interest in effect on the Note and shall become so much additional Indebtedness Secured Hereby and shall become immediately due and payable in full on demand of the Mortgagee, its successors and assigns. The indemnification provisions contained in this Section 1.10 shall be a personal monetary obligation of the Mortgagor notwithstanding any provisions of this Mortgage or the Note to the contrary that limit or exculp the personal liability of the Mortgagor and/or require the Mortgagee to look solely to the security of the Premises. Notwithstanding anything to the contrary, nothing in this Paragraph 1.10 shall be limited by or modified by the environmental indemnity agreement, executed by Mortgagor in favor of Mortgagee, if any is executed herewith. 1.11 TITLE. Mortgagor is the lawful owner of and has good and marketable fee simple absolute title to the Premises and will warrant and defend title to the same free of all liens and encumbrances, other than the Encumbrances permitted under the policy of Mortgagee's title insurance issued to Mortgagee in connection with this Mortgage, and has good right and lawful authority to grant, bargain, sell, convey, mortgage and grant a security interest in the Premises as provided herein. 1.12 NO CONFLICT WITH OTHER DOCUMENTS' OBLIGATIONS. The execution and delivery by Mortgagor of this Mortgage, the Note, the other collateral documents to which the Mortgagor is a party and any other instruments contemplated hereby or securing the Note, the consummation of the transactions contemplated hereby and thereby, and the fulfillment of the terms and conditions hereof and thereof do not and will not conflict with or result in a breach of any court order, judgment or decree or of any mortgage, indenture, loan agreement or instrument or to which the Mortgagor or to which any property of the Mortgagor is subject, and do not and will not constitute a default under any of the foregoing, or result in the creation or imposition of any lien charge or encumbrance of any nature upon any of the property or assets of the Mortgagor contrary to the terms of any instrument or agreement. 1.13 NO SUITS PENDING. There are no actions, suits or proceedings pending or, to the knowledge of the Mortgagor, threatened against the Mortgagor or the Premises in any court or 7 before any federal, state, county, city or other governmental authority or before any arbitrator which, if decided adversely to the Mortgagor would have a materially adverse effect upon the Mortgagor or upon the Premises, or the value thereof, and the Mortgagor is not in default with respect to any order of any court or governmental agency. 1.14 CURRENT COMPLIANCE WITH LAWS. The Premises as improved on the date hereof, comply with all material requirements of law, including requirements of any federal and state, county, city or other governmental authority having jurisdiction over the Mortgagor or the Premises and including, but not limited to, any applicable zoning, occupational safety and health, energy and environmental laws, ordinances and regulations; there is no hazardous waste contamination in or about the Premises and no pollutants are stored thereon; and the Mortgagor has obtained all necessary consents, permits and licenses to construct, occupy and operate the Premises for its intended purposes. ARTICLE TWO INSURANCE AND ESCROWS 2.1 INSURANCE. Mortgagor shall obtain, pay for and keep in full force and effect during the term of this Mortgage at Mortgagor's sole cost and expense, the following policies of insurance: (a) Insurance against loss of fire, lightning and risk customarily covered by standard extended coverage endorsement, including the cost of debris removal, together with a vandalism and malicious mischief endorsement, all in the amounts of not less than the full replacement cost of the improvements on the Premises; (b) Broad Form Boiler and Machinery insurance on all pressure fired vehicles or apparatus situate on the Premises with full repair and replacement cost coverage; (c) Flood insurance in the maximum obtainable amount but not to exceed the replacement cost of the improvements on the Premises unless evidence is provided that the Premises are not within a flood plain as defined by the Federal Insurance Administration; (d) Rents Loss or Business Interruption Insurance covering risk or loss due to the occurrence of any hazards insured against under the required fire and extended coverage insurance in an amount equal to 12 months loss of income; (e) Commercial 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 Premises in such minimal amount and with such minimal limits as the Mortgagee may reasonably require; (f) While any building is in the process of construction on the Premises a hazard insurance policy written on the so called "builders risk completed value form," all risk non-reporting form of policy for the full replacement cost of the building and such worker's compensation insurance as is required by statute. 8 Such insurance policies shall be written on forms and with insurance companies satisfactory to Mortgagee, shall be in the 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 to be made payable to the Mortgagee. All required policies of insurance or acceptable certificates thereof together with evidence of the payment of current premiums therefor shall be delivered to and be held by the Mortgagee. Mortgagor shall deliver to Mortgagee certificates of insurance or copies of policies satisfactory to Mortgagee evidencing the insurance that is required under this Section, and Mortgagor shall promptly furnish to Mortgagee all renewal notices and all receipts of paid premiums received by Mortgagor. At least thirty (30) days prior to the expiration date of a required policy, Mortgagor shall deliver to Mortgagee a renewal policy or certificate of insurance in form satisfactory to Mortgagee. 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. In the event of a foreclosure of this Mortgage or any acquisition of the Premises 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 Premises at Mortgagor's expense and for the benefit of the Mortgagee in the amounts and types set forth above for a period of time covering the time of redemption from foreclosure sale, and if necessary, to cancel any or all existing insurance policies. At least once every three (3) years while any sums remain outstanding under the Note, Mortgagor agrees to cause its insurance coverage to be reappraised and furnish Mortgagee copies of the reappraisal reports and insurance recommendations. 2.2 ESCROWS. Mortgagor shall deposit with the Mortgagee, or at Mortgagee's request, with a servicing agent, on same day as payments are due under the Note each and every month hereafter as a deposit to pay the costs of taxes, assessments and insurance premiums next due ("Charges"): (a) Initially a sum such that the amounts to be deposited pursuant to paragraph 2.2 (b) shall equal the estimated Charges; and (b) Thereafter an amount equal to one-twelfth (1/12th) of the estimated annual Charges due on the Premises. Mortgagee will, upon the presentation to the Mortgagee by the Mortgagor of the bills therefor, pay the Charges from such deposits or will upon presentation of receipted bills therefor, reimburse the Mortgagor for such payments made by the Mortgagor. In the event the deposits on hand shall not be sufficient to pay all of the estimated Charges when the same shall become due from time to time, or the prior deposits shall be less than the currently estimated monthly amounts, then the Mortgagor shall pay to the Mortgagee on demand any amount necessary to make up the deficiency. The excess of any such deposits shall be credited to subsequent payments to be made for such items. If a default or an event of default shall occur under the terms of this Mortgage, the Mortgagee may, at its option, without being required so to do, apply any deposits on hand to the Indebtedness Secured Hereby, in such order and manner as the Mortgagee may elect. When the Indebtedness Secured Hereby has been fully paid, any remaining deposits, shall be returned to the Mortgagor as its 9 interest may appear. All deposits are hereby pledged as additional security for the Indebtedness Secured Hereby, shall be held for the purposes for which they were made as herein provided, may be held by Mortgagee or its servicing agent and may be commingled with other funds of the Mortgagee, or its servicing agent, shall be held without any allowance of interest thereon and shall not be subject to the decision or control of the Mortgagor. Neither Mortgagee nor its servicing agent shall be liable for any act or omission made or taken in good faith. In making any payments, Mortgagee or its servicing agent may rely on any statement, bill or estimate procured from or issued by the payee without inquiry into the validity or accuracy of the same. If the taxes shown in the tax statement shall be levied on property more extensive than the Premises, then the amounts escrowed shall be based on the entire tax bill and Mortgagor shall have no right to require an apportionment and Mortgagee or its servicing agent may pay the entire tax bill notwithstanding that such taxes pertain in part to other property and the Mortgagee shall be under no duty to seek a tax division or apportionment of the tax bill. ARTICLE THREE UNIFORM COMMERCIAL CODE SECURITY AGREEMENT 3.1 SECURITY AGREEMENT. This Mortgage shall constitute a security agreement as defined in the Uniform Commercial Code ("Code"). Any equipment or fixtures installed in or used in the Premises are to be used by the Mortgagor solely for the Mortgagor's business purposes or as the equipment and fixtures leased or furnished by the Mortgagor, as landlord, to tenants of the Premises and such equipment or fixtures will be kept at the buildings on the Premises and will not be removed therefrom without the consent of the Mortgagee and may be affixed to such buildings but will not be affixed to any other real estate. The remedies of the 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 constructed as a waiver of any of the other rights of the Mortgagee including having any non-realty items of the Premises deemed part of the realty upon any foreclosure thereof. If notice to any party of the intended disposition of the Premises 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 real property or may be given by private notice if such parties are known to Mortgagee. Neither the grant of a security interest pursuant to this Mortgage nor the filing of a financing statement pursuant to the Code shall ever impair the stated intention of this Mortgage that all personal property, rents, leases and profits and judgments and awards comprising and at all times and for all purposes and in all proceedings both legal or equitable shall be regarded as part of the real property mortgaged hereunder irrespective of whether such item is physically attached to the real property or any such item is referred to or reflected in a financing statement. Mortgagor will on demand deliver any financing statements that may from time to time be required by Mortgagee to establish and perfect the priority of Mortgagee's security interest in the Premises and shall pay all expenses incurred by Mortgagee in connection with the renewal or extensions of any financing statements executed in connection with the Premises; and shall give advance written notice of any proposed change in Mortgagor's name, 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. 10 3.2 MAINTENANCE OF PROPERTY. Subject to the provisions of this section, in any instance where Mortgagor in its sound discretion determines that any item subject to a security interest under this Mortgage has become inadequate, obsolete, worn out, unsuitable, undesirable or unnecessary for the operation of the Premises, Mortgagor may, at its expense, remove and dispose of it and substitute and install other items not necessarily having the same function, provided that such removal and substitution shall not impair the operating utility and unity of the Premises. All substituted items shall become a part of the Premises and subject to the lien of the Mortgage. Any amounts received or allowed Mortgagor upon the sale or other disposition of the removed items of property shall be applied first against the cost of acquisition and installation of the substituted items. Nothing herein contained shall be construed to prevent any tenant from removing from the Premises trade fixtures, furniture and equipment installed by the tenant and removable by the tenant under the terms of its lease, on the condition, however, that the tenant shall at its own cost and expense, repair any and all damages to the Premises resulting from or caused by the removal thereof. 3.3 MORTGAGOR TO COMPLY WITH PRIOR SECURITY INSTRUMENTS. Mortgagor shall at its sole cost and expense perform, comply with and discharge all obligations of Mortgagor under any prior secured financing arrangements (whether lease purchase, conditional sales or pure lease arrangements) for any property subject to this security interest. Mortgagor shall not permit a surrender, assignment or transfer of its interest in any such property without a prior written consent of Mortgagee nor permit or suffer a default to exist under such prior financing arrangements. 3.4 FIXTURE FILING. THIS MORTGAGE SHALL BE EFFECTIVE AS A FINANCING STATEMENT FILED AS A FIXTURE FILING WITH RESPECT TO ALL GOODS CONSTITUTING A PART OF THE PREMISES WHICH ARE OR ARE TO BECOME FIXTURES RELATED TO THE PREMISES. FOR PURPOSES OF THE UNIFORM COMMERCIAL CODE, THE FOLLOWING INFORMATION IS FURNISHED: (a) The name and address of the record owner of the real estate described in this instrument is: WSI Industries, Inc. 213 Chelsea Road Monticello, Minnesota 55362 (b) the name and address of the Debtor is: WSI Industries, Inc. 213 Chelsea Road Monticello, Minnesota 55362 (c) the name and address of the Secured Party is: Excel Bank Minnesota 11 50 South Sixth Street, Suite 1000 Minneapolis MN 55402 (d) Information concerning the security interest evidenced by this instrument may be obtained from the Secured Party at its address above. (e) This document covers goods, which are or are to become fixtures. (f) The legal description of the real estate is: See attached Exhibit A. (g) The federal tax identification number of the Debtor is: 41-0691607 and the state charter number of the Debtor is: K-680. 3.5 MORTGAGOR'S REPRESENTATION AND WARRANTIES REGARDING THE SECURITY INTEREST. The Mortgagor is a corporation and the true and correct address of the Mortgagor's chief executive office is shown in Section 3.4(b) above, and all other information contained in Section 3.4 above is true, correct and accurate. The Mortgagor has not used any trade name, assumed name, or other name except the Mortgagor's name stated above. The Mortgagor shall not change its state of organization without the Mortgagee's prior written consent. The Mortgagor shall give the Mortgagee prior written notice of any change in such address or the Mortgagor's name or if the Mortgagor uses any other name. The Mortgagor has authority to execute and perform this instrument. The Mortgagor authorizes the Mortgagee to file all of the Mortgagee's financing statements and amendments to financing statement, and all terminations of the filings of other secured parties, all with respect to the Premises and the collateral described in this document, in such form and substance as the Mortgagee, in its sole discretion, may determine. ARTICLE FOUR APPLICATION OF INSURANCE AND AWARDS 4.1 DAMAGE OR DESTRUCTION OF THE PREMISES. Mortgagor shall give the Mortgagee prompt notice of any damage to or destruction of the Premises and in case of loss covered by policies of insurance, the Mortgagee (whether before or after foreclosure sale) is hereby authorized at its option to settle and adjust any claim arising out of such policies and collect and receive the proceeds payable therefrom, provided, that the Mortgagor may itself adjust and collect for any losses arising out of a single occurrence aggregating not in excess of $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 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 Secured Hereby then most remotely to be paid, whether due or not, without the application of any prepayment premium, or to the restoration or repair of the Premises, the choice of application to be solely at the discretion of Mortgagee. 4.2 CONDEMNATION. Mortgagor shall give the Mortgagee prompt notice of any actual or threatened condemnation or eminent domain proceedings affecting the Premises and hereby assigns, transfers, and sets over to the Mortgagee the entire proceeds of any award or claim for 12 damages or settlement in lieu thereof for all or any part of the Premises taken or damaged under such eminent domain or condemnation proceedings, 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 acquittances for such proceeds. Mortgagor will not enter into any agreements with the condemning authority permitting or consenting to the taking of the Premises or agreeing to a settlement unless prior written consent of Mortgagee is obtained. Any expenses incurred by the Mortgagee in intervening in such action or collecting such proceeds, including reasonable attorney's fees, shall be reimbursed to the Mortgagee first out of the proceeds. The proceeds or any part thereof shall be applied upon or in reduction of the Indebtedness Secured Hereby then most remotely to be paid, whether due or not, without the application of any prepayment premium, or to the restoration or repair of the Premises, the choice of application to be solely at the discretion of Mortgagee. 4.3 DISBURSEMENT OF INSURANCE AND CONDEMNATION PROCEEDS. Any restoration or repair shall be done under the supervision of an architect acceptable to Mortgagee and pursuant to plans and specifications approved by the Mortgagee. In such case where Mortgagee may elect to apply the proceeds to repair or restoration or permit the Mortgagor to so apply the proceeds, then the proceeds shall be held by Mortgagee for such purposes and will from time to time be disbursed by Mortgagee to defray the costs of such restoration or repair under such safeguards and controls as Mortgagee may establish to assure completion in accordance with the approved plans and specifications and free of liens or claims. Mortgagor shall on demand deposit with Mortgagee any sums necessary to make up any deficits between the actual cost of the work and the proceeds and provide such lien waivers and completion bonds as Mortgagee may reasonably require. Any surplus which may remain after payment of all costs of restoration or repair may at the option of the Mortgagee be applied on account of the Indebtedness Secured Hereby then most remotely to be paid, whether due or not, without application of any prepayment premium or shall be returned to Mortgagor as Mortgagor's interest may appear, the choice of application to be solely at the discretion of Mortgagee. 4.4 RIGHT TO USE INSURANCE PROCEEDS. Notwithstanding the foregoing provisions regarding the disposition of insurance proceeds, but only if Mortgagor meets the following conditions, Mortgagee will not elect to apply all of such proceeds to the Indebtedness Secured Hereby, but shall hold such proceeds in an escrow account of Mortgagee, from which account the proceeds may be withdrawn only by Mortgagee and shall be readvanced to Mortgagor for the purpose of reconstructing or restoring the Mortgaged Property under the following terms and conditions. Mortgagee shall make insurance proceeds available to Mortgagor ONLY IF: (i) at the time of the occurrence of the event for which proceeds are being received and at the time of the receipt of such proceeds, there is no existing uncured Event of Default hereunder; and (ii) the total proceeds to be received, together with such other sums as Mortgagor may deposit with Mortgagee, shall be sufficient, in Mortgagee's opinion, to restore the Mortgaged Property to its original condition. All such proceeds and sums shall be held by Mortgagee in an interest-bearing deposit account under the sole and exclusive control and dominion of Mortgagee, and Mortgagor shall have no right to withdraw or otherwise direct the payment of any funds from such account. If Mortgagor qualifies for the right to use such proceeds for the reconstruction and restoration of the Mortgaged Property, then Mortgagee shall advance such proceeds and sums to Mortgagor in the manner and upon such terms and conditions as would be required by a prudent interim construction lender, 13 including, without limitation, Mortgagee's right to require such items as a sworn construction statement, recordable lien waivers and appropriate title insurance endorsements. Any excess proceeds and sums and interest thereon not required to complete such restoration shall, at Mortgagee's option, be applied first to payment of the Indebtedness Secured Hereby in such manner as Mortgagee shall determine with any excess to be paid to Mortgagor. ARTICLE FIVE LEASES AND RENTS 5.1 MORTGAGOR TO COMPLY WITH LEASES. Mortgagor will, at its own cost and expense, perform, comply with and discharge all of the obligations of Mortgagor under any leases or agreements for the use of the Premises and use Mortgagor's best efforts to enforce or secure the performance of each obligation and undertaking of the respective tenants under any such leases and will appear in and defend, at its own cost and expense, any action or proceeding arising out of or in any manner connected with the Mortgagor's interest in any leases of the Premises. Mortgagor shall permit no surrender or assignment of any tenant's interest under said leases unless the right to assign or surrender is expressly reserved under the lease, accept any installment of rent for more than one month in advance of its due date, nor execute any mortgage or create or permit a lien which may be or become superior to any such leases, nor permit a subordination of any lease to such mortgage or lien. Mortgagor will not materially modify or amend the terms of any such leases, or borrow against or pledge the rentals from such leases or exercise or waive any default of the tenant thereunder without the prior written consent of Mortgagee. 5.2 MORTGAGEE'S RIGHT TO PERFORM UNDER LEASES. Should the Mortgagor fail to perform, comply with or discharge any obligations of Mortgagor under any lease or should the Mortgagee become aware of or be notified by any tenant under any lease of a failure on the part of Mortgagor to so perform, comply with or discharge its obligations under said lease, Mortgagee may, but shall not be obligated to, without further demand upon the Mortgagor, and without waiving or releasing Mortgagor from any obligation in this Mortgage contained, remedy such failure, and the Mortgagor agrees to repay upon demand all sums incurred by the Mortgagee in remedying any such failure together with interest at the rate specified in the Note. All such sums, together with interest at the rate described in the Note shall become so much additional Indebtedness Secured Hereby, but no such advance shall be deemed to relieve the Mortgagor from any default hereunder. 5.3 LEASE APPROVAL. Each lease of the Premises to be entered into by Mortgagor shall be approved by the Mortgagee and shall be satisfactory to the Mortgagee in form and content. Each such lease at the election of the Mortgagee will be either superior or subordinate to the lien of the Mortgage and each tenant shall execute an appropriate subordination or attornment agreement as required by the Mortgagee. Also, to the extent required by the Mortgagee, each tenant shall execute an estoppel certificate and at Mortgagee's discretion, acknowledge receipt of a notice of the assignment of its lease, all satisfactory in form and content to the Mortgagee. 5.4 ASSIGNMENT OF LEASES AND RENTS. The Mortgagor does hereby sell, assign and transfer unto Mortgagee all of the leases, rents, income and profits now due and which may hereafter become due under or by virtue of any lease, whether written or verbal, or any agreement 14 for the use or occupancy of the Premises, it being the intention of this Mortgage to establish an absolute transfer and assignment of all such leases and agreements and all of the rents and profits from the Premises unto the Mortgagee and the Mortgagor does hereby appoint irrevocably the Mortgagee its true and lawful attorney in its name and stead, which appointment is coupled with an interest, to collect all of said rents and profits; provided, Mortgagee grants the Mortgagor the privilege, revocable, to collect and retain such rents, income, and profits unless and until any Event of Default exists under this Mortgage. ARTICLE SIX RIGHTS OF MORTGAGEE 6.1 RIGHT TO CURE DEFAULT. If the Mortgagor shall fail to comply with any of the covenants or obligations of this Mortgage, the Mortgagee may, but shall not be obligated to, without further notice to Mortgagor and without waiving or releasing Mortgagor from any obligation in this Mortgage contained, remedy such failure, and the Mortgagor agrees to repay upon demand all sums incurred by the Mortgagee in remedying any such failure together with interest at the then rate in effect on the Note. All such sums, together with interest at the rate described in the Note shall become so much additional Indebtedness Secured Hereby, but no such advance shall be deemed to relieve the Mortgagor from any default hereunder. 6.2 NO CLAIM AGAINST THE MORTGAGEE. Nothing contained in this Mortgage shall constitute any consent or request by the Mortgagee, express or implied, for the performance of any labor or services or for the furnishing of any materials or other property in respect of the Premises or any part thereof, nor as giving the Mortgagor or any party in interest with Mortgagor any right, power or authority to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would create any personal liability against the Mortgagee in respect thereof or would permit the making of any claim that any lien based on the performance of such labor or services or the furnishing of any such materials or other property is prior to the lien of this Mortgage. 6.3 INSPECTION. Mortgagor will permit the Mortgagee's authorized representatives to enter the Premises at reasonable times for the purpose of inspecting the same; provided the Mortgagee shall have no duty to make such inspections and shall not incur any liability or obligation for making or not making any such inspections. 6.4 WAIVERS; RELEASES; RESORT TO OTHER SECURITY, ETC. Without affecting the liability of any party liable for payment of any Indebtedness Secured Hereby or performance of any obligation contained herein, and without affecting the rights of the Mortgagee with respect to any security not expressly released in writing, the Mortgagee may, at any time, and without notice to or the consent of the Mortgagor or any party in interest with the Premises or the Note: (a) release any person liable for payment of all or any part of the Indebtedness Secured Hereby or for performance of any obligation herein; (b) make any agreement extending the time or otherwise altering the terms of 15 payment of all or any part of the Indebtedness Secured Hereby or modifying or waiving any obligation, or subordinating, modifying or otherwise dealing with the lien or charge hereof; (c) accept any additional security; (d) release or otherwise deal with any property, real or personal, including any or all of the Premises, including making partial releases of the Premises; or (e) resort to any security agreements, pledges, contracts of guarantee, assignments of rents and leases or other securities, and exhaust any one or more of said securities and the security hereunder, either concurrently or independently and in such order as it may determine. 6.5 WAIVER OF APPRAISEMENT, HOMESTEAD, MARSHALING. The Mortgagor waives to the full extent lawfully allowed the benefit of any homestead, appraisement, evaluation, stay and extension laws now or hereinafter in force. Mortgagor waives any rights available with respect to marshaling of assets so as to require the separate sales of any portion of the Premises, or as to require the Mortgagee to exhaust its remedies against a specific portion of the Premises before proceeding against the other and does hereby expressly consent to and authorize the sale of the Premises or any part thereof as a single unit or parcel or as separate parcels. 6.6 EVASION OF PREPAYMENT. If the Note contains a restrictions on any prepayment of the Indebtedness Secured Hereby, if an Event of Default shall occur and the Indebtedness Secured Hereby is accelerated a tender of such amount necessary to satisfy the accelerated amount or a mortgage foreclosure sale under this Mortgage shall be considered an evasion of the prepayment restrictions of the Note and the Mortgagee may demand in addition to all other sums due it by reason of an Event of Default the premium then due under the Note as if Mortgagor had voluntarily prepaid the same (or if no prepayment be permitted then with the premium applicable on the earliest date on which the Note may be prepaid). The Mortgagor expressly waives the provisions of any present or future statute, law or judicial interpretation or principle that prohibits or may prohibit the collection of the foregoing premium in connection with any such acceleration. ARTICLE SEVEN EVENTS OF DEFAULT AND REMEDIES 7.1 EVENTS OF DEFAULT. It shall be an event of default ("Event of Default") under this Mortgage upon the happening of any of the following (after any required notice and the expiration of any applicable opportunity to cure): (a) failure to comply with any of the provisions of the Note including without limitation the failure to make any payment on the Note whether principal, interest, premium or late charge, when and as the same becomes due (whether at the stated maturity or at a date fixed for any installment payment or any accelerated payment date or otherwise) within five (5) days of the date on which such performance is due; or (b) failure to pay, perform or comply with when due any other Indebtedness Secured Hereby; or 16 (c) failure to comply with or perform any of the other terms, conditions or covenants of this Mortgage and such failure shall continue for a period of fifteen (15) days after notice thereof to Mortgagor or such longer time as may be reasonably necessary for Mortgagor to cure, while acting with due diligence, provided in any event that such time shall be no more than sixty (60) days; or (d) the Mortgagor shall fail to pay Mortgagor's debts as they become due, make an assignment for the benefit of Mortgagor's creditors, or shall admit in writing Mortgagor's inability to pay its debts as they become due or shall file a petition under any chapter of the United States Bankruptcy Code or any similar law, state or federal, now or hereafter existing, or shall become "insolvent" as that term is generally defined under the United States Bankruptcy Code, or shall in any involuntary bankruptcy case commenced against it file an answer admitting insolvency or inability to pay its debts as they become due, or shall fail to obtain a dismissal of such case within sixty (60) days after its commencement or convert the case from one chapter of the United States Bankruptcy Code to another chapter, or be the subject of an order for relief in such bankruptcy case, or be adjudged a bankrupt or insolvent, or shall have a custodian, trustee or receiver appointed for, or have any court take jurisdiction of its property, or any part thereof, in any proceeding for the purpose of reorganization, arrangement, dissolution or liquidation, and such custodian, trustee or receiver shall not be discharged, or such jurisdiction shall not be relinquished, vacated or stayed within sixty (60) days of the appointment; or (e) an event of default shall occur under any other instrument securing the Note and shall not have been cured within the time permitted therein to cure; or (f) a judgment, writ or warrant of attachment or execution, or similar process shall be entered and become a lien or be issued or levied against the Premises and shall not be released or fully bonded within forty-five (45) days after its entry, issue or levy; or (g) any material representation or warranty made by Mortgagor herein, in the Note, the Loan Agreement executed in conjunction herewith, or in any other instrument given as security for payment of the Indebtedness Secured Hereby or executed in conjunction with the Note shall be false, breached or dishonored; or (h) the Mortgagor shall default under or shall fail to comply with any of the terms, conditions or provisions of the Loan Agreement executed in conjunction with this Mortgage. 7.2 MORTGAGEE'S RIGHT TO ACCELERATE. If an Event of Default shall occur the Mortgagee may declare the entire unpaid principal balance of the Note together with all other Indebtedness Secured Hereby to be immediately due and payable and thereupon all such unpaid principal balance of the Note together with all accrued interest thereon at the rate of interest provided under the Note and all other Indebtedness Secured Hereby shall be and become immediately due and payable. 17 7.3 RIGHT TO FORECLOSE. If an Event of Default shall occur the Mortgagee may, either with or without entry or taking possession, proceed by suit or suits at law or in equity or by any other appropriate proceedings or remedy to enforce payment of the Indebtedness Secured Hereby or the performance of any other term hereof or any other right and the Mortgagor hereby authorizes and fully empowers the Mortgagee to foreclose this Mortgage by judicial proceedings or by advertisement with power of sale and grants to the Mortgagee full authority to sell the Premises at public auction and convey title to the Premises to the purchaser, either in one parcel or separate lots and parcels, all in accordance with and in the manner prescribed by law, and out of the proceeds arising from sale and foreclosure to retain the principal and interest due on the Note and the Indebtedness Secured Hereby together with all such sums of money as Mortgagee shall have expended or advanced pursuant to this Mortgage or pursuant to statute together with interest thereon at the rate of interest described in the Note and all costs and expenses of such foreclosure, including lawful attorneys' fees, with the balance, if any, to be paid to the persons entitled thereto by law. In any such proceeding the Mortgagee may apply all or any portion of the Indebtedness Secured Hereby to the amount of the purchase price. 7.4 RECEIVER. If an Event of Default shall occur, the Mortgagee shall be entitled as a matter of right without notice and without giving bond and without regard to the solvency or insolvency of the Mortgagor, or waste of the Premises or adequacy of the security of the Premises, to apply for the appointment of a Receiver (a) under Minn. Stat. Section 576.01 or any successor or supplementary statute thereto who shall have all the rights, powers and remedies as provided by such statute and who shall apply the rents, issues and profits as provided by statute and thereafter to all expenses for maintenance of the Premises and to the costs and expenses of the receivership, including reasonable attorneys' fees and to the repayment of the Indebtedness Secured Hereby or (b) pursuant to any assignment of leases and rents described herein or otherwise executed by the Mortgagor to the Mortgagee who shall in addition to the rights, powers and remedies as provided by statute have such rights, powers and remedies as provided in such assignment of leases and rents and who shall apply the rents, issues and profits as provided therein. 7.5 RIGHTS UNDER UNIFORM COMMERCIAL CODE. In addition to the rights available to a mortgagee of real property Mortgagee shall also have all the rights, remedies and recourse available to a secured party under the Uniform Commercial Code including the right to proceed under the provisions of the Uniform Commercial Code governing default as to any property which is subject to the security interest created by the Mortgage or to proceed as to such personal property in accordance with the procedures and remedies available pursuant to a foreclosure of real estate. 7.6 DUE ON SALE OR MORTGAGING, ETC. In the event of the sale, conveyance, transfer, or further mortgaging, encumbrancing or disposition of the Premises, or any part thereof, or any interest therein without the written consent of Mortgagee being first obtained, whether voluntary, involuntary, or by operation of law, then at the sole option of Mortgagee, the Mortgagee may declare the entire Indebtedness Secured Hereby due and payable in full and call for payment of the same in full at once, together with the prepayment premium, if any, as provided for in the Note for a voluntary prepayment at that time (and if at such time no prepayment privilege exists under the Note, then with the prepayment premium provided for in the Note at the earliest date on which the Indebtedness Secured Hereby could be prepaid). 18 Notwithstanding the foregoing, Mortgagor may make a transfer or conveyance of Mortgagor's interest in the Premises, with the written consent of 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. For purposes of this Paragraph 7.6, any change in the legal or equitable title of the Premises or in the beneficial ownership of the Premises whether or not of record and whether or not for consideration shall be deemed a transfer of an interest in the Premises. As a condition to any consent, the Mortgagee may among other things require an assumption of the Indebtedness Secured Hereby by the transferee, an increase in the rate of interest on the Indebtedness Secured Hereby, a change in the terms of payment, the payment of Mortgagee's out-of-pocket costs incurred with respect to any consent and/or a "transfer fee." 7.7 RIGHTS CUMULATIVE. Each right, power or remedy herein conferred upon the Mortgagee is cumulative and in addition to every other right, power or remedy, express or implied, now or hereafter arising, available to Mortgagee, at law or in equity, or under any other agreement, and each and every right, power and remedy herein set forth or otherwise so existing may be exercised from time to time as often and in such order as may be deemed expedient by the Mortgagee and shall not be a waiver of the right to exercise at any time thereafter any other right, power or remedy. No delay or omission by the Mortgagee in the exercise of any right, power or remedy arising hereunder or arising otherwise shall impair any such right, power or remedy or the right of the Mortgagee to resort thereto at a later date or be construed to be a waiver of any default or event of default under this Mortgage or the Note. 7.8 RIGHT TO DISCONTINUE PROCEEDINGS. In the event Mortgagee shall have proceeded to invoke any right, remedy or recourse permitted under this Mortgage and shall thereafter elect to discontinue or abandon the same for any reason, Mortgagee shall have the unqualified right to do so and in such event Mortgagor and Mortgagee shall be restored to their former positions with respect to the Indebtedness Secured Hereby, and this Mortgage, the Premises and all rights, remedies and recourse of the Mortgagee shall continue as if the same had not been invoked. 7.9 ACKNOWLEDGEMENT OF WAIVER OF HEARING BEFORE SALE. Mortgagor understands and agrees that if any default is made under the terms of this Mortgage, Mortgagee has the right, inter alia, to foreclose this Mortgage by advertisement pursuant to Minnesota Statutes, Chapter 580, as hereafter amended, or pursuant to any similar or replacement statute hereafter enacted; that if the Mortgagee elects to foreclose by advertisement, it may cause the Premises, or any part thereof, to be sold at public auction; that notice of such sale must be published in a newspaper of general circulation for the period of time required by law and that no personal notice is required to be served upon Mortgagor. Mortgagor further understands that in the event of such default the Mortgagee may also elect its rights under the Uniform Commercial Code and take possession of any personal property and dispose of the same by sale or otherwise in one or more parcels provided that at least ten (10) days' prior notice of such disposition must be given, all as provided for by the Uniform Commercial Code, as hereafter amended or by any similar or replacement statute hereafter enacted. Mortgagor further understands that under the Constitution of the United States and the Constitution of the State of Minnesota it may have the right to notice and hearing before the Premises may be sold and that the procedure for foreclosure by advertisement described above does not ensure that notice will be given to the Mortgagor and neither said 19 procedure for foreclosure by advertisement nor the Uniform Commercial Code requires any hearing or other judicial proceeding. MORTGAGOR HEREBY EXPRESSLY CONSENTS AND AGREES THAT THE PREMISES MAY BE FORECLOSED BY ADVERTISEMENT AND THAT THE PERSONAL PROPERTY MAY BE DISPOSED OF PURSUANT TO THE UNIFORM COMMERCIAL CODE, ALL AS DESCRIBED ABOVE. MORTGAGOR ACKNOWLEDGES THAT MORTGAGOR EITHER HAS BEEN REPRESENTED BY LEGAL COUNSEL OR HAD THE OPPORTUNITY TO BE REPRESENTED BY LEGAL COUNSEL; THAT BEFORE SIGNING THIS DOCUMENT THIS PARAGRAPH AND MORTGAGOR'S CONSTITUTIONAL RIGHTS WERE FULLY EXPLAINED BY SUCH COUNSEL OR UNDERSTOOD BY MORTGAGOR, WITHOUT THE ADVICE OF COUNSEL, AND THAT MORTGAGOR UNDERSTANDS THE NATURE AND EXTENT OF THE RIGHTS WAIVED HEREBY AND THE EFFECT OF SUCH WAIVER. 7.10 ESTOPPEL CERTIFICATES. Mortgagor agrees at any time and from time to time, upon not less than fifteen (15) days prior notice by Mortgagee, to execute, acknowledge and deliver, without charge, to Mortgagee or to any person designated by Mortgagee, a statement in writing certifying that this Mortgage is unmodified (or if there have been modifications, identifying the same by the date thereof and specifying the nature thereof), the principal amount then secured hereby, that Mortgagor has not received any notice of default or notice acceleration or foreclosure of this Mortgage (or if Mortgagor has received such a notice, that it has been revoked, if such be the case), that to the knowledge of Mortgagor no Event of Default exists hereunder (or if any such Event of Default does exist, specifying the same and stating that the same has been cured, if such be the case), the Mortgagor to Mortgagor's knowledge has no claims or offsets against Mortgagee (or if Mortgagor has any such claims, specifying the same), and the dates to which the principal and interest and the other sums and charges payable by Mortgagor pursuant to the Note and this Mortgage have been paid. In the event Mortgagor fails to execute, acknowledge and deliver such statement within the time above required, Mortgagor hereby appoints and constitutes Mortgagee as Mortgagor's attorney-in-fact to do so (which power of attorney is coupled with an interest and is irrevocable), and Mortgagor shall be fully bound by any such statement executed by Mortgagee on Mortgagor's behalf to the same extent as if Mortgagor had executed, acknowledged and delivered the same. ARTICLE EIGHT MISCELLANEOUS 8.1 RELEASE OF MORTGAGE. When all Indebtedness Secured Hereby has been paid, this Mortgage and all assignments herein contained shall be void and this Mortgage shall be released by the Mortgagee at the cost and expense of the Mortgagor, otherwise to remain in full force and effect. 8.2 CHOICE OF LAW. This Mortgage is made and executed under the laws of the State of Minnesota and is intended to be governed by the laws of said State. 8.3 SUCCESSORS AND ASSIGNS. This Mortgage and each and every covenant, agreement and other provision hereof shall be binding upon the Mortgagor and its successors and assigns including without limitation each and every from time to time record owner of the Premises 20 or any other person having an interest therein, shall run with the land and shall inure to the benefit of the Mortgagee and its successors and assigns. As used herein the words "successors and assigns" shall also be deemed to include the heirs, representatives, administrators and executors of any natural person who is or becomes a party to this Mortgage. In the event that the ownership of the Premises becomes vested in a person or persons other than the Mortgagor, the Mortgagee shall not have any obligation to deal with such successor or successors in interest unless such transfer is permitted by this Mortgage and then only upon being notified in writing of such change of ownership. Upon such notification, the Mortgagee may thereafter deal with such successor in place of Mortgagor without any obligation to thereafter deal with Mortgagor and without waiving any liability of Mortgagor hereunder or under the Note. No change of ownership shall in any way operate to release or discharge the liability of the Mortgagor hereunder unless such release or discharge is expressly agreed to in writing by the Mortgagee. 8.4 UNENFORCEABILITY OF CERTAIN CLAUSES. The unenforceability or invalidity of any provisions hereof shall not render any other provision or provisions herein contained unenforceable or invalid. 8.5 CAPTIONS AND HEADINGS. The captions and headings of the various sections of this Mortgage are for convenience only and are not to be construed as confining or limiting in any way the scope or intent of the provisions hereof. Whenever the context requires or permits, the singular shall include the plural, the plural shall include the singular and the masculine, feminine and neuter shall be freely interchangeable. 8.6 NOTICES. Any notices and other communications permitted or required by the provisions of this Mortgage (except for telephonic notices expressly permitted) shall be in writing and shall be deemed to have been properly given or served by depositing the same with the United States Postal Service, or any official successor thereto, bearing adequate postage, or delivery by reputable private carrier such as Federal Express, UPS or similar overnight delivery service, and addressed as hereinafter provided. Each such notice shall be effective upon being deposited as described above. The time period within which a response to any such notice must be given, however, shall commence to run from the date of the notice to the addressee thereof. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given shall be deemed to be receipt of the notice sent. Except as otherwise provided herein, by giving to the other party hereto at least ten (10) days' notice thereof, either party hereto shall have the right from time to time and at any time during the term of this Mortgage to change its address and shall have the right to specify as its address any other address within the United States of America. Each notice to Mortgagee shall be addressed as follows: Excel Bank Minnesota 50 South Sixth Street, Suite 1000 Minneapolis MN 55402 Attention: Daniel D. Poppe 21 Each notice to Mortgagor shall be addressed as follows: WSI Industries, Inc. 213 Chelsea Road Monticello MN 55362 8.7 ADJUSTABLE RATE NOTE. The Note secured by this Mortgage provides for adjustments in its interest rate from time to time in accordance with its terms. Reference is made to the Note for the times, terms and conditions of the adjustment in the interest rate. Such times, terms and conditions are incorporated herein by reference. IN WITNESS WHEREOF, the Mortgagor has caused these presents to be executed effective as of the date first above written. WSI INDUSTRIES, INC., a Minnesota corporation By: /s/ Paul D. Sheely ----------------------------------- Paul D. Sheely Its: Chief Financial Officer 22 EX-10.7 8 c85252exv10w7.txt MORTGAGE Exhibit 10.7 MORTGAGE THIS MORTGAGE is given on May 3, 2004. The borrower is WSI Industries, Inc., a Minnesota corporation ("Borrower"). This Mortgage is given to the Monticello Economic Development Authority, a public body corporate and politic (the "Lender"). Borrower owes Lender the principal sum of $350,000.00. This debt is evidenced by a promissory note dated as of even date herewith (the "Note"). This Mortgage secures to Lender: (a) the repayment of the debt evidenced by the Note, and all renewals, extensions and modifications of the Note; (b) the payment of all other sums, advanced to protect the security of this Mortgage; (c) the performance of Borrower's covenants and agreements under this Mortgage and the Note; and (d) is subject to the terms and conditions of that certain Loan Agreement between Borrower and Lender and dated as of March 3, 2004. For this purpose, Borrower does hereby mortgage, grant and convey to Lender, with power of sale, the property located in Wright County, Minnesota and fully described in the attached Exhibit A, together with all the improvements now or hereafter erected on the property, and all easements, appurtenances, and fixtures now or hereafter a part of the property. All replacements and additions shall also be covered by this Mortgage. All of the foregoing is referred to in this Mortgage as the "Property". BORROWER COVENANTS that Borrower is lawfully seized of the estate hereby conveyed and has the right to mortgage, grant and convey the Property and that the Property is unencumbered, except for encumbrances of record and as set forth in paragraph 19. Borrower warrants and will defend generally the title to the Property against all claims and demands, subject to any encumbrances of record. Borrower and Lender agree as follows: 1. Payment of Principal and Interest; Late Charges. Borrower shall promptly pay when due the principal on the debt evidenced by the Note and any late charges due under the Note. 2. Charges; Liens. Borrower shall pay all taxes, assessments, charges, fines and impositions attributable to the Property which may attain priority over this Mortgage, and leasehold payments or ground rents, if any. Borrower shall pay these obligations on time directly to the person owed payment. Borrower shall promptly discharge any lien which has priority over this Mortgage unless Borrower: (a) agrees in writing to the payment of the obligation secured by the lien in a manner reasonably acceptable to Lender; (b) contests in good faith the lien by, or defends against enforcement of the lien in, legal proceedings which in the Lender's opinion operate to prevent the enforcement of the lien; or (c) secures from the holder of the lien an agreement satisfactory to Lender subordinating the lien to this Mortgage. If Lender determines that any part of the Property is subject to a lien which may attain priority over this Mortgage, Lender may give Borrower a notice identifying the lien. Borrower shall satisfy the lien or take one or more of the actions set forth above within thirty (30) days of the giving of notice. Notwithstanding the foregoing, this Mortgage is subordinate to the first mortgage in the original principal amount of $1,360,000 given by Borrower to Excel Bank. 3. Hazard or Property Insurance. Borrower shall keep the improvements now existing or hereafter erected on the Property insured against loss by fire and any other hazards for which Lender requires insurance. This insurance shall be maintained in the amounts and for the periods that Lender reasonably requires. The insurance carrier providing the insurance shall be chosen by Borrower subject to Lender's approval, which shall not be unreasonably withheld or delayed. If Borrower fails to maintain coverage described above, Lender may, at Lender's option, obtain coverage to protect Lender's rights in the Property in accordance with paragraph 5. All insurance policies and renewals shall be reasonably acceptable to Lender and shall include a standard mortgage clause. If Lender requires, Borrower shall promptly give to Lender all receipts of paid premiums and renewal notices. In the event of loss, Borrower shall give prompt notice to the insurance carrier and Lender. Lender may make proof of loss if not made promptly by Borrower. If under paragraph 15 the Property is acquired by Lender, Borrower's right to any insurance policies and proceeds resulting from damage to the Property prior to the acquisition shall pass to Lender to the extent of the sums secured by this Mortgage immediately prior to the acquisition. 4. Protection of the Property. Borrower shall not destroy or damage the Property or commit waste on the Property. Borrower shall be in default if any forfeiture action or proceeding, whether civil or criminal, is begun that in Lender's good faith judgment could result in forfeiture of the Property or otherwise materially impair the lien created by this Mortgage or Lender's security interest. Borrower may cure such a default and reinstate, as provided in paragraph 13, by causing the action or proceeding to be dismissed with a ruling that, in Lender's good faith determination, precludes forfeiture of the Borrower's interest in the Property or other material impairment of the lien created by this Mortgage or Lender's security 2 interest. Borrower shall also be in default if Borrower gave materially false or inaccurate information or statements to Lender in connection with the loan evidenced by the Note. 5. Protection of Lender's Rights in the Property. If Borrower fails to perform the covenants and agreements contained in this Mortgage, or there is a legal proceeding that may significantly affect Lender's rights in the Property (such as a proceeding in bankruptcy, condemnation or forfeiture), Lender may do and pay for whatever is necessary to protect the value of the Property and Lender's rights in the Property. Lender's actions may include paying any sums secured by a lien which has priority over this Mortgage, appearing in court, paying reasonable attorneys fees and entering on the Property to make repairs. Although Lender may take action under this paragraph 5, Lender is not required to do so. Any amounts disbursed by Lender under this paragraph 5 shall become additional debt of Borrower secured by this Mortgage. Unless Borrower and Lender agree to other terms of payment, these amounts shall bear interest from the date of disbursement at a rate equal to the interest rate on the Note and shall be payable, with interest, upon notice from Lender to Borrower requesting payment. 6. Inspection. Lender or its agent may make reasonable entries upon and inspections of the Property. 7. Condemnation. The proceeds of any award or claim for damages, direct or consequential, in connection with any condemnation or other taking of any part of the Property, or for conveyance in lieu of condemnation, are hereby assigned and shall be paid to Lender. In the event of a total taking of the Property, the proceeds shall be applied to the sums secured by this Mortgage, whether or not then due, with any excess paid to Borrower. In the event of a partial taking of the Property in which the fair market value of the Property immediately before the taking is equal to or greater than the amount of the sums secured by this Mortgage immediately before the taking, unless Borrower and Lender otherwise agree in writing, if any, the sums secured by this Mortgage shall be reduced by the amount of the proceeds multiplied by the following fraction: (a) the total amount of the sums secured immediately before the taking, divided by (b) the fair market value of the Property immediately before the taking. Any balance shall be paid to Borrower. In the event of a partial taking of the Property in which the fair market value of the Property immediately before the taking is less than the amount of the sums secured immediately before the taking, unless Borrower and Lender otherwise agree in writing or unless applicable law otherwise provides, the proceeds shall be applied to the sums secured by this Mortgage whether or not the sums are then due. 8. Forbearance By Lender Not a Waiver. Any forbearance by Lender in exercising any right or remedy shall not be a waiver of or preclude the exercise of any right or remedy. 9. Successors and Assigns Bound. The covenants and agreements of this Mortgage shall bind and benefit the successors and assigns of Lender and Borrower. 3 10. Loan Charges. If the loan secured by this Mortgage is or becomes subject to a law which sets maximum loan charges, and that law is finally interpreted so that the interest or other loan charges collected or to be collected in connection with the loan exceed the permitted limits, then: (a) any such loan charge shall be reduced by the amount necessary to reduce the charge to the permitted limit; and (b) any sums already collected from Borrower which exceeded permitted limits will be refunded to Borrower. Lender may choose to make this refund by reducing the principal owed under the Note or by making a direct payment to Borrower. If a refund reduces principal, the reduction will be treated as a partial prepayment under the Note. 11. Notices. Any notice to Borrower provided for in this Mortgage shall be given by delivering it personally or by mailing it by first class United States mail, postage prepaid, return receipt requested. The notice shall be directed to the Borrower at 213 Chelsea Road, Monticello, Minnesota 55362, with a copy to Lindquist & Venuum, P.L.L.P. at 4200 IDS Center, 890 South Eighth Street, Minneapolis, Minnesota 55402 Attn: Laura Krenz, or any other address Borrower designates by notice to Lender. Any notice to Lender shall be given or mailed City Hall, 505 Walnut Avenue, Suite 1, Monticello, Minnesota 55362, Attn: Executive Director, or any other address Lender designates by notice to Borrower. Any notice provided for in this Mortgage shall be deemed to have been given to Borrower or Lender when given as provided in this paragraph. 12. Governing Law; Severability. This Mortgage shall be governed by the law of the state of Minnesota. In the event that any provision or clause of this Mortgage or the Note conflicts with applicable law, such conflict shall not affect other provisions of this Mortgage or the Note which can be given effect without the conflicting provision. To this end, the provisions of this Mortgage and the Note are declared to be severable. 13. Borrower's Right to Reinstate. If Borrower meets certain conditions, Borrower shall have the right to have enforcement of this Mortgage discontinued at any time prior to the earlier of: (a) 5 days before sale of the Property pursuant to any power of sale contained in this Mortgage; or (b) entry of a judgment enforcing this Mortgage. Those conditions are that Borrower: (a) pays Lender all sums which then would be due under this Mortgage and the Note as if no acceleration had occurred; (b) cures any default of any other covenants or agreements; (c) pays all expenses incurred in enforcing this Mortgage, including, but not limited to, reasonable attorneys fees; and (d) takes such action as Lender may reasonably require to assure that the lien of this Mortgage, Lender's rights in the Property and Borrower's obligation to pay the sums secured by this Mortgage shall continue unchanged. Upon reinstatement by Borrower, this Mortgage and the obligations secured hereby shall remain fully effective as if no acceleration had occurred. 14. Hazardous Substances. Borrower shall not cause or permit the presence, use, disposal, storage, or release of any hazardous substances on or in the Property, except those solvents, oils, cleaning materials, and other substances as are used in the ordinary course of Borrower's business. Borrower shall not do, and will use its best efforts not to allow anyone else to do, anything affecting the Property that is in violation of any environmental law. 4 Borrower shall promptly give Lender written notice of any investigation, claim, demand, lawsuit or other action by any governmental or regulatory agency or private party involving the Property and any hazardous substance or environmental law of which Borrower has actual knowledge. If Borrower learns, or is notified by any governmental or regulatory authority, that any removal or other remediation of any hazardous substance affecting the Property is necessary, Borrower shall promptly take all necessary remedial actions in accordance with that environmental law. As used in this paragraph 14, "hazardous substances" are those substances defined as toxic or hazardous substances by environmental law and the following substances: gasoline, kerosene, other flammable or toxic petroleum products, volatile solvents, materials containing asbestos or formaldehyde, and radioactive materials. As used in this paragraph 14, "environmental law" means federal or state laws that relate to environmental protection. 15. Acceleration; Remedies. Lender shall give notice to Borrower prior to acceleration following Borrower's breach of any covenant or agreement in this Mortgage. The notice shall specify: (a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to Borrower by which the default must be cured, provided, however, if Borrower is diligently pursuing a cure, Borrower shall have such additional time as is reasonably necessary to complete the cure; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by this Mortgage and sale of the Property. The notice shall further inform Borrower of the right to reinstate after acceleration and sale. If the default is not cured on or before the date specified in the notice, Lender at its option may require immediate payment in full of any sums secured by this Mortgage without further demand and may invoke the power of sale and any other remedies permitted by law. Lender shall be entitled to collect all expenses incurred in pursuing the remedies provided in this paragraph 15, including, but not limited to, reasonable attorneys fees. If Lender invokes the power of sale, Lender shall cause a copy of a notice of sale to be served upon any person in possession of the Property. Lender shall publish a notice of sale, and the Property shall be sold at public auction in the manner prescribed by law. Lender or its designee may purchase the Property at any sale. The proceeds of the sale shall be applied in the following order: (a) to all expenses of the sale, including, but not limited to, reasonable attorneys fees; (b) to all sums secured by this Mortgage; and (c) any excess to the person or persons legally entitled to it. 16. RELEASE OF MORTGAGE. Upon payment of all sums secured by this Mortgage, Lender shall discharge this Mortgage without charge to Borrower. Borrower shall pay any recordation costs. 5 WSI INDUSTRIES, INC. By: /s/ Michael Pudil ------------------------------------------ Its: President and Chief Executive Officer 6 EX-10.8 9 c85252exv10w8.txt 2ND AMENDMENT AND MODIFICATION OF REVOLVING LOAN Exhibit 10.8 SECOND AMENDMENT AND MODIFICATION OF REVOLVING LINE OF CREDIT LOAN AGREEMENT AND REAFFIRMATION OF GUARANTIES This Amendment and Modification of Revolving Line of Credit Loan Agreement and Reaffirmation of Guaranties ("Amendment") is made effective the 3rd day of May, 2004 ("Effective Date") by and among WSI Industries, Inc., a Minnesota corporation, having an address of 18151 Territorial Road, Osseo, MN 55369 ("Borrower"), Taurus Numeric Tool, Inc., having an address of 18151 Territorial Road, Osseo, MN 55369 and WSI Rochester, Inc., having an address of 18151 Territorial Road, Osseo, MN 55369 (jointly "Guarantor") and Excel Bank Minnesota, a Minnesota banking corporation, having an address of 50 South Sixth Street, Suite 1000, Minneapolis MN 55402 ("Bank"). WHEREAS, on or about December 4, 2002, (the "Loan Date") Borrower executed a Revolving Line of Credit Promissory Note in favor of the Bank in the original principal amount of One Million and 00/100 ($1,000,000.00) Dollars ("Note"); and WHEREAS, on or about the Loan Date, Borrower and the Bank executed that certain Loan Agreement ("Loan Agreement") which Loan Agreement, among other things, described the terms and conditions under which the Borrower would borrow money from and repay the money to the Bank; and WHEREAS, to secure the sums due and payable to the Bank pursuant to the Note and the Loan Agreement, Borrower also executed that certain Security Agreement, also dated as of the Loan Date, whereby the Bank took a security interest in all assets of Borrower ("Security Agreement); and WHEREAS, to further secure the sums due and payable to the Bank pursuant to the Note and the Loan Agreement, to perform the covenants and conditions thereof and of certain documents executed in conjunction therewith, each Guarantor executed an unconditional and unlimited guaranty ("Guaranty"), also dated as of the Loan Date, whereby each Guarantor unconditionally guaranteed the Borrower's performance of the Note and the Loan Agreement and the other loan documents executed therewith; and WHEREAS, the Note, the Loan Agreement, the Security Agreement and all of the documents executed in conjunction therewith are sometimes jointly referred to herein as the "Loan Documents"; and WHEREAS, the Loan Documents were amended by that certain Amendment and Modification of Revolving Line of Credit Promissory Note, Loan Agreement and Reaffirmation of Guaranties dated effective December 30, 2003; and WHEREAS, the Bank and the Borrower and each Guarantor desire that the Loan Agreement be amended and modified as hereinafter described and each Guarantor wishes to acknowledge and reaffirm the terms and conditions of such Guarantor's Guaranty. -1- Exhibit 10.8 NOW, THEREFORE, in consideration of the above recitals, and in consideration of credit given or to be given by the Bank to the Borrower and for other good and valuable consideration, all of which consideration is hereby acknowledged, the parties hereto agree as follows: 1. Each of the above recitals is true and correct and is incorporated herein by this reference. 2. The following sections of the Loan Agreement are hereby amended and modified as described below (all capitalized terms have the meanings given to them in the Loan Agreement): Section 5.09 RATIO OF DEBT TO TANGIBLE NET WORTH. So long as the Note shall remain unpaid or the Bank shall have any Commitment hereunder, the ratio of the Borrower's Debt to Tangible Net Worth shall not exceed 1.75 to 1 measured at the end of each fiscal quarter end basis. Section 5.10 RATIO OF CURRENT ASSETS TO CURRENT LIABILITIES. The Borrower shall maintain, for each fiscal quarter end that the Note remains outstanding or the Bank shall have any Commitment hereunder, the ratio of its Current Assets to its Current Liabilities added to its outstanding debt under the Note at not less than 1.75 to 1. Section 6.10 CAPITAL EXPENDITURES. So long as the Note shall remain unpaid or the Bank shall have any Commitment hereunder, Borrower shall make no capital expenditures in excess of Eight Hundred Fifty Thousand and 00/100 ($850,000.00) Dollars in any fiscal year. This covenant shall be exclusive of the acquisition of title to the real property located at 213 Chelsea Road, Monticello, Minnesota by the Borrower. 3. A new Section 5.11 shall be added to the Loan Agreement as follows: Section 5.11 DEBT SERVICE COVERAGE RATIO. So long as the Note shall remain unpaid or the Bank shall have any Commitment hereunder, the Borrower will maintain an annual ratio of earnings before interest, taxes, depreciation and amortization, less distributions to shareholders, all for the same specified period to annual principal and interest payments due on all Debt of the Borrower of not less than 1 to 1 on December 31, 2004 and not less than 1.25 to 1 at each December 31st thereafter beginning on December 31, 2005, as determined in accordance with generally recognized accounting principles consistently applied. 4. A new Section 7.01(l) shall be added to the Loan Agreement as follows: -2- Exhibit 10.8 Any material event or condition of default (however defined) by Borrower shall occur and the applicable cure period, if any, shall have expired, in any promissory note or any agreement between Borrower and the Bank, including but not limited to that certain Promissory Note dated May 3, 2004 and that certain Loan Agreement dated May 3, 2004 between Borrower and the Bank; or 5. Borrower hereby acknowledges and reaffirms each and every representation, warranty, term, covenant and condition of the Loan Documents. Borrower further acknowledges and agrees that the Loan Documents (as hereby amended and modified) are fully enforceable against Borrower and that Borrower has no defense, right of offset or otherwise to preclude enforcement of the Loan Documents, as hereby amended and modified, by the Bank against Borrower. 6. The Security Agreement shall continue to secure all sums owing to the Bank by the Borrower pursuant to the terms and conditions of the Note and the Loan Agreement, together with all interest thereon, in accordance with the terms and conditions of the Note and all other sums due and owing or to become due and owing pursuant to the terms and conditions of this Amendment, the Loan Agreement, the Security Agreement and the Note, including but not necessarily limited to any further or additional extensions or renewals thereof. 7. Borrower and each Guarantor acknowledge that the principal balance remaining unpaid on the Note as of the Effective Date hereof is - zero- ($0.00) Dollars. 8. Each Guarantor hereby acknowledges, ratifies and reaffirms each and every term, covenant, agreement, provision, and condition of their respective Guaranty and any collateral security documents securing such guaranty, including but not limited to the security agreement dated of even date with the Guaranty ("Collateral Security Documents"), and the Loan Documents and hereby acknowledges and agrees that the Guaranty guarantees to the Bank the repayment of all sums due and owing to the Bank pursuant to the terms, conditions and covenants of the Note and the performance of the terms and covenants of the balance of the Loan Documents. Each Guarantor hereby affirms and agrees that each such Guaranty is unconditional and unlimited and that such Guaranty along with the Collateral Security Documents related thereto are fully enforceable against such Guarantor. Each Guarantor hereby further affirms and agrees and that such Guarantor has no defense, right of offset, claim, cause of action or otherwise to preclude the absolute and immediate enforcement of the Guaranty and/or the Collateral Security Documents supporting such Guaranty by the Bank. 9. On or before the execution hereof, Borrower shall pay to the Bank, the Bank's costs including its reasonable attorneys' fees, incurred in drafting this Amendment and related documents, if any. 10. Except as herein specifically modified, amended or extended, all terms and conditions of -3- Exhibit 10.8 the Loan Documents shall otherwise remain unchanged and in full force and effect. 11. Notwithstanding anything to the contrary herein, this Amendment or any failure by the Bank to exercise any of its rights upon an event of default under the Loan Documents or the Guaranty or the Collateral Security Documents, whether prior to or subsequent to the effective date of this Amendment, shall not be deemed a waiver of the Bank's available remedies under the Loan Documents, the Guaranty, or the Collateral Security DOCUMENTS or any amendments thereof, or any other documents executed in conjunction therewith or incident thereto. 12. All the terms of this Amendment shall be binding upon and inure to the benefit of and be enforceable by the successors and assigns of the parties hereto, to the extent assignment is permitted pursuant to the Loan Documents or the Guaranty. 13. This Amendment is being executed in and is intended to be performed in the State of Minnesota and shall be construed and enforced in accordance with the laws of such state. 14. This Amendment contains the entire agreement between the parties with respect to the covenants and promises contemplated herein and may be amended only in a writing signed by each of the parties hereto. IN WITNESS WHEREOF, the parties have executed this Amendment on 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 Officer GUARANTOR: TAURUS NUMERIC TOOL, INC., a Minnesota corporation By: /s/ Paul D. Sheely ----------------------------------- Paul D. Sheely Its: Chief Financial Officer -4- Exhibit 10.8 WSI ROCHESTER, INC., a Minnesota corporation By: /s/ Paul D. Sheely ----------------------------------- Paul D. Sheely Its: Chief Financial Officer EXCEL BANK MINNESOTA, a Minnesota banking corporation, By: /s/ Daniel D. Poppe ----------------------------------- Daniel D. Poppe Its: Managing Director -5- EX-99.1 10 c85252exv99w1.txt PRESS RELEASE Exhibit 99.1 WSI INDUSTRIES ANNOUNCES PLANT ACQUISITION Minneapolis, MN -- May 3, 2004 -- WSI Industries, Inc. (Nasdaq: WSCI) announced today that it closed on the purchase of an existing 49,000 square foot facility located in Monticello, MN. The purchase price was $1.9 million and was paid for by a combination of cash and debt. WSI currently operates out of a leased 28,000 square foot facility located in Osseo, MN. Plans call for relocation to the Monticello facility over the next 6 months. Michael J. Pudil, president and chief executive officer, commented: "We are pleased with the acquisition of the facility and the assistance and cooperation provided by the City of Monticello. A driving factor in our decision to relocate was the growing level of business from the Company's recreational vehicle market that includes ATV's and motorcycles. In addition, we are continuing to see improvement in our other key markets of avionics and defense." Pudil went on to say: "The building is a modern facility that was designed and built specifically for contract machining. The increase in size will accommodate our current customer requirements and meet our projected growth opportunities." WSI Industries, Inc. is a leading contract manufacturer that specializes in the machining of complex, high-precision parts for a wide range of industries, including avionics and aerospace, recreational vehicles, computers, small engines and the defense market. # # # For additional information: Michael J. Pudil (CEO) or Paul D. Sheely (CFO) 763-428-4308 The statements included herein which are not historical or current facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Reform Act of 1995. There are certain important factors which could cause actual results to differ materially from those anticipated by some of the statements made herein, including the Company's ability to retain current programs and obtain additional manufacturing programs, and other factors detailed in the Company's filings with the Securities and Exchange Commission. -----END PRIVACY-ENHANCED MESSAGE-----