-----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, MrT2C8qMpx35sU/8eGReusJYgX6qNvajA2uq56tkBNNeTBLpEIpgAsyUZQowc2I1 QQtFtBZDKsourM3At5eZ7w== 0000007623-03-000006.txt : 20030414 0000007623-03-000006.hdr.sgml : 20030414 20030414145420 ACCESSION NUMBER: 0000007623-03-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030228 FILED AS OF DATE: 20030414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARTS WAY MANUFACTURING CO INC CENTRAL INDEX KEY: 0000007623 STANDARD INDUSTRIAL CLASSIFICATION: FARM MACHINERY & EQUIPMENT [3523] IRS NUMBER: 420920725 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-05131 FILM NUMBER: 03648465 BUSINESS ADDRESS: STREET 1: P O BOX 288 CITY: ARMSTRONG STATE: IA ZIP: 50514 BUSINESS PHONE: 7128643131 MAIL ADDRESS: STREET 1: P O BOX 288 CITY: ARMSTRONG STATE: IA ZIP: 50514 10-Q 1 feb10qfx.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended February 28, 2003 Commission File No. 0-5131 ART'S-WAY MANUFACTURING CO., INC. (Exact name of registrant as specified in its charter) DELAWARE 42-0920725 State of Incorporation I.R.S. Employer Identification No. Hwy 9 West, Armstrong, Iowa 50514 Address of principal executive offices Zip Code Registrant's telephone number, including area code: (712) 864-3131 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2). Yes __ No X Number of common shares outstanding as of March 21, 2003: 1,938,176 ART'S-WAY MANUFACTURING CO., INC. CONDENSED STATEMENT OF OPERATIONS (Unaudited) Three Months Ended February 28, November 30, 2003 2002 Net Sales $ 2,508,877 $ 2,641,892 Cost of goods sold 1,870,449 2,071,292 Gross Profit 638,428 570,600 Expense Engineering 18,923 14,879 Selling 128,193 128,296 General and administravtive 352,428 401,226 Total expenses 499,544 544,401 Income from operations 138,884 26,199 Other expenses: Interest expense 17,979 60,589 Other 6,065 14,111 Total other expenses 24,044 74,700 Income (loss) before income taxes 114,840 (48,501) Income tax expense 2,031 - Net Income (loss) $ 112,809 $ (48,501) Net income (loss) per share: Basic $ 0.06 $ (0.03) Diluted Common shares and equivalent outstanding: Basic 1,938,176 1,411,954 Diluted 1,947,272 1,411,954 See accompanying notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. CONDENSED BALANCE SHEETS (Unaudited) February 28, November 30, 2003 2002 ASSETS Current Assets Cash $ 76,396 $ 75,358 Accounts receivable-customers, net of allowance for doubtful accounts of $54,500 and $50,000 in February and November,respectively 1,651,416 592,945 Inventories 3,567,581 3,576,707 Other current assets 115,613 95,385 Total current assets 5,411,006 4,340,395 Property, plant and equipment, at cost 10,725,972 10,725,972 Less accumalated depreciation 9,821,130 9,751,260 Net property, plant and equipment 904,842 974,712 Inventories, noncurrent 430,509 430,509 Other assets 175,849 175,849 Total Assets $ 6,922,206 $ 5,921,465 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes payable to bank $ 172,818 $ 319,222 Current portion of long-term debt 356,669 356,669 Accounts payable 661,198 523,492 Customer deposits 1,086,408 249,756 Accrued expenses 780,210 630,972 Total current liabilities 3,057,303 2,080,111 Long-term liabilities 187,204 187,204 Long-term debt, excluding current portion 431,570 520,830 Total liabilities $ 3,676,077 $ 2,788,145 Stockholders' Equity Common stock - $.01 par value. Authorized 5,000,000 shares; issued 1,938,176 shares in February and in November 19,382 19,382 Additional paid-in capital 1,634,954 1,634,954 Retained earnings 1,591,793 1,478,984 Total stockholders' equity 3,246,129 3,133,320 Total liabilities and stockholders' equity $ 6,922,206 $ 5,921,465 See accompanying notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended February 28, February 28, 2003 2002 CASH FLOW FROM OPERATIONS: Net income (loss) $ 112,809 $ (48,501) Adjustment to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 69,870 60,953 Changes in working capital components: (Increase) decrease in: Accounts receivable (1,058,471) (442,614) Inventories 9,126 458,670 Other current assets (20,228) 6,770 Increase (decrease) in: Accounts payable 137,706 (146,641) Customer deposits 836,652 560,748 Accrued expenses 149,238 56,200 Net cash provided by operating activities 236,702 505,585 CASH FLOW FROM INVESTING ACTIVITIES: 0 0 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from (payments of) notes payable to bank (146,404) (1,079,545) Principal payments on term debt (89,260) (89,191) Proceeds from issuance of common stock from treasury 0 53,253 Proceeds from issuance of common stock 0 746,747 Net cash used in financing activities (235,664) (368,736) Net increase in cash 1,038 136,849 Cash at beginning of period 75,358 4,375 Cash at end of period $ 76,396 $ 141,224 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 17,979 $ 64,033 Income taxes 3,301 4,032 See accompanying notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Statement Presentation The financial statements are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. The financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended November 30, 2002. The results of operations for the first quarter ended February 28, 2003 are not necessarily indicative of the results for the fiscal year ending November 30, 2003. 2. INCOME (LOSS) PER SHARE Basic net income (loss) per common share is computed on the basis of weighted average number of common shares outstanding. Diluted net income (loss) per share has been computed on the basis of weighted average number of common shares outstanding plus equivalent shares assuming exercise of stock options. The difference in shares utilized in calculating basic and diluted net income (loss) per share represents the number of shares issued under the Company's stock option plans less shares assumed to be purchased with proceeds from the exercise of the stock options. Due to the net loss for the quarter ended February 28, 2002, the anti-dilutive effect of the Company's stock option plans is not included in the calculation of diluted loss per share for that period. The reconciling item between the shares used in the computation of basic and diluted earnings per share for the first quarter ended February 28, 2003 is 9,096 equivalent shares for the effect of dilutive stock options. 3. INVENTORIES Major classes of inventory are: February 28, November 30, 2003 2002 Raw material $ 906,731 $ 1,065,166 Work-in-process 1,401,327 1,209,007 Finished goods 1,690,032 1,733,043 Total $ 3,998,090 $ 4,007,216 Less inventories classified as noncurrent 430,509 430,509 Inventories, current $3,567,581 $3,576,707 4. ACCRUED EXPENSES Major components of accrued February 28, November 30, expenses are: 2003 2002 Salaries, wages and commissions $ 298,414 $ 294,220 Accrued warranty expense 55,612 60,232 Other 426,184 276,520 Total $ 780,210 $ 630,972 5. LOAN AND CREDIT AGREEMENTS Line of Credit The Company has a credit agreement with a lending institution (lender) that provides for a revolving line of credit (credit facility) and a term loan and expires December 1, 2003. The credit facility allows for borrowings up to $4,500,000, subject to borrowing base percentages on the Company's accounts receivable and inventory, and allowing for letters of credit for $100,000. At February 28, 2003, the Company has borrowed $172,818 and has $100,000 in outstanding letters of credit. At November 30, 2002, the Company had borrowed $319,222 and had $100,000 in outstanding letters of credit. At February 28, 2003 and November 30, 2002, $1,741,000 and $1,038,000 were available for borrowings, respectively. The interest rate is based on the lender's referenced rate and is variable based upon certain performance objectives. Under the terms of the agreement, the Company will not pay more than 4% over the reference rate, nor less than the reference rate during the term of the agreement. The outstanding borrowings bear interest at 8.25% at February 28, 2003. The term loan was for an original principal amount of $1,991,000. The principal amount is repayable in monthly installments of $23,700 with the remaining balance due on December 1, 2003. All loans, advances and other obligations, liabilities and indebtedness of the Company are secured by all present and future assets. The Company pays an unused line fee equal to three-eighths of 1% of the unused portion of the revolving line of credit. The Company's cash account has been restricted by the lender, such that any available cash is used to pay down on the credit facility. During 1999, the Company was notified by its lender that the Company does not fit the lender's customer profile and was requested to relocate its financing needs. At November 30, 2000 and 1999, the Company was in default of a loan covenant, the fixed maturity coverage ratio, of their credit facility and term loan. The lender notified the Company that the current loan agreement provided that the lender may, as a result of any event of default, accelerate the payment of all obligations. As a result, all term borrowings associated with this lender had been classified as current. The lender did not call for the acceleration of the payment of all obligations, but retained the right to do so at any time. The initial term of the loan agreement ended on August 31, 2000. In a letter dated May 26, 2000, the Company was notified that the lender did not intend to extend the term of the loan agreement beyond the termination date. Therefore, all of the obligations outstanding under the credit agreement and term loan amounting to $4,383,825 at August 31, 2000 were due and payable on August 31, 2000. During the period between August 31, 2000 and August 31, 2001, the loan agreement was amended several times to provide for extensions of various lengths from 30 days to 90 days. On September 1, 2001, the lender sold the loan to another lending institution (new lender). Under this arrangement, the Company continued to operate under the same terms as existed prior to the sale. The new lender granted an extension from September 1, 2001 through November 15, 2001. On February 25, 2003, the lender granted forbearance and waived its right to demand payment because of existing covenant defaults until December 1, 2003. Therefore, the portion of the term loan not due until December 1, 2003 has been classified as long-term debt in the accompanying balance sheet. Management believes alternative long-term financing can be obtained from different lenders on acceptable terms and that the Company will be able to meet its obligations under a new credit agreement when completed. A summary of the Company's term debt is as follows: February 28, November 30, 2003 2002 Installment term debt payable in monthly installments of $23,700, plus interest at four percent over the bank's national money market rate (8.25%), due on demand, secured (a) $ 534,271 $ 605,371 State of Iowa Community Development Block Grant promissory notes at zero percent interest, maturity 2006, with quarterly principal payments of $11,111 155,556 166,667 State of Iowa Community Development Block Grant local participation promissory notes at 4% interest, maturity 2006, with quarterly payments of $7,007 98,412 105,461 Total term debt 788,239 877,499 Less current portion of term debt 356,669 356,669 Term debt, excluding current portion $ 431,570 $ 520,830 (a)All borrowings under the installment term loan payable are secured by the cash, accounts receivable, inventories, and property, plant, and equipment of the Company. The agreement required the Company to maintain specified ratios, as defined, of debt-to-tangible net worth and net cash income to current maturities, and restricted the Company from issuing any dividends. 6. RELATED PARTY TRANSACTION In February 2002, the Company sold common stock to an existing shareholder, Mr. J. Ward McConnell, Jr., at estimated fair value. Proceeds from the sale of the stock were $800,000. Mr. McConnell has agreed that without prior approval of the Board of Directors, excluding himself and his son, he will not acquire as much as fifty percent (50%) of the Company's common stock and will not take the Company private. Immediately after the transaction, Mr. McConnell was elected as Chairman of the Board of Directors of the Company. His son, Marc McConnell, is also a Board Member. Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (a) Liquidity and Capital Resources The Company's main source of funds for the quarter ended February 28, 2003 were payments received from customers for advance payments on sugar beet equipment to be delivered in the second and third quarter. These sources were offset by an increase in accounts receivable and payments on the Company's note payable and term debt. The increase in accounts receivable results from the high level of OEM sales in February 2003 which are sold on 30 day terms. The positive cash flow from operations of $236,702 was used to reduce bank notes by $235,664. As of February 28, 2003, the Company had no material commitments for capital expenditures. See footnote 5 of the notes to the condensed financial statements for a discussion of the Company's credit facility. The Company is mindful of the necessity to continue to control its costs, as it intends to finance its working capital and pay down its debt through cash from operations. (b) Results of Operations Overall sales for the first quarter of fiscal 2003 were approximately $2,509,000, or 5% lower than last year's first quarter sales of approximately $2,642,000. Sales of Art's-Way products were 21% lower and OEM sales were 12% higher than one year ago. OEM sales included products for two original equipment manufacturers. The reduction in sales reflects the continuing weakness in the farm economy. Gross profit, as a percent of sales, was 25% for the quarter ended February 28, 2003, as compared to 22% for the same period in 2002. Operating expenses in the first quarter 2003 decreased $45,000 from 2002. This decrease is primarily due to changing the health insurance plan offered to the employees. As a percent of sales, operating expenses were 20% and 21% for the three months ended February 28, 2003 and 2002, respectively. Other expenses decreased by $51,000 from the previous year. Reduction in bank borrowings combined with lower interest rates and reduced volume in our financed accounts receivable resulted in this reduction. The order backlog as of February 28, 2003 is $2,916,000, compared to $2,292,000 one year ago. These orders primarily will be delivered in the second and third quarter of the current fiscal year. The current year backlog includes $1,187,000 in orders for beet equipment compared to $771,000 last year at this time. OEM backlog is $731,000 to be shipped in the second and third quarter. (c) Critical Accounting Policies The Company's critical accounting policies involving the more significant judgments and assumptions used in the preparation of the financial statements as of February 28, 2003, have remained unchanged from November 30, 2002. These policies involve revenue recognition, inventory valuation and income taxes. Disclosure of these critical accounting policies is incorporated by reference under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operation" in the Company's Annual report on Form 10-K for the year ended November 30, 2002. Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company does not have any additional market risk exposure other than what was outlined in the November 30, 2002, 10-K filing. Item 4 DISCLOSURE CONTROLS AND PROCEDURES Within 90 days of the filing date of this quarterly report, the Company's Chief Executive Officer and Finance Manager have evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15(d)-14(c)) and, based on their evaluation, have concluded that the disclosure controls and procedures are effective. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective action with regard to significant deficiencies and material weaknesses. Part II - Other Information ITEM 1. LITIGATION AND CONTINGENCIES Various legal actions and claims are pending against the Company. In the opinion of management, adequate provisions have been made in the accompanying financial statements for all pending legal actions and other claims. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.6 Forbearance Agreement 99.1 Certification of Financial Statements (b) Reports on Form 8-K: None SIGNATURES 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. ART'S-WAY MANUFACTURING CO., INC. Date April 14, 2003 By: /s/John C. Breitung (John C. Breitung, President) By: /s/Seth LaBore Date April 14, 2003 (Seth LaBore, Finance Manager) CERTIFICATIONS I, John C. Breitung, certify that: 1.I have reviewed this quarterly report on Form 10-Q of Art's-Way Manufacturing Co., Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quartely report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and rocedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 14, 2003 /s/ John C. Breitung President and Chief Executive Officer OM504759.1 CERTIFICATIONS I, Seth F. La Bore, certify that: 1.I have reviewed this quarterly report on Form 10-Q of Art's-Way Manufacturing Co., Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quartely report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and rocedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 14, 2003 /s/ Seth F. LaBore Finance Manager OM504760.1 EX-10 2 forebear.txt Exhibit 10.6 FORBEARANCE AGREEMENT AND FIFTEENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT THIS FORBEARANCE AGREEMENT AND FIFTEENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "agreement"), dated as of January 31, 2003 is made by and between ART'S-WAY MANUFACTURING CO., INC., a Delaware corporation ("Borrower"), and UPS CAPITAL CORPORATION, a Delaware corporation ("UPSC" or "Lender"), as successor-in-interest to BANK OF AMERICA, NATIONAL ASSOCIATION, a national banking association, the successor to Bank of America National Trust & Savings Association ("BofA"). RECITALS A. Borrower and BofA entered into that certain Loan and Security Agreement, dated as of August 31, 1995 (the "Orginal Loan Agreement"), as amended by the First Amendment to Loan and Security Agreement dated as of April 12, 1996 (the"First Amendment"); as further amended by the Waiver and Second Amendment to Loan and Security Agreement dated as of August 30, 1996 (the "Second Amendment"); as further amended by the Waiver and Third Amendment to Loan and Security dated as of July 14, 1997 (the Third Amendment"); as further amended by the Waiver and Fourth Amendment to Loan and Security Agreement dated as of April 23, 1998 (the"Fourth Amendment"); as further amended by the Waiver and Fifth Amendment dated as of February 24,1999 (the "Fifth Amendment"); as further amended by the Waiver and Sixth Amendment to Loan and Security Agreement dated as of May 31, 1999 (the"Sixth Amendment"); as further amended by the Forbearance Ageement and Seventh Amendment to Loan and Security Agreement dated of August 31, 2000 (the "Seventh Amendment"); as further amended by the Forbearance Agreement and Eight Amendment to Loan and Security Agreement dated as of August 31, 2000 (the"Eighth Amendment")' as further amended by the Forbearance Agreement and Ninth Amendment to Loan and Security Agreement dated as of Janaury 15, 2000 (the "Ninth Amendment"); as further amended by the Forbearance Agreement and Tenth Amendment to Loan and Security Agreement dated as of Februay 15, 2001 (the "Tenth Amendment"); as further amended by the Forbearance and Eleventh Amendment to Loan and Security Agreement dated as of April 15, 2001; as further amended by the Forbearance Agreement and Twelfth Amendement to Loan and Security Agreement dated as of June 15, 2001 (the "Twelfth Amendement"); as further amended by the Forbearance Agreement and Wavier to Loan and Security Agreement, dated as July 13, 2001 (the "Thirteenth Amendment"); and as futher amended by the Forbearance Agreement and Waiver to Loan and Security Agreement, dated as of September 15, 2001 (the "Fourteenth Amendment") (the Original Loan Agreement, as amended by the First Amendment through the Fourteenth Amendment, is referred to herein as the "Loan Agreement"), pursuant to which BofA agreed, among other things , to make loans and other financial accommodations to Borrower (collectively, the "Loans"), subject to the terms and conditions set forth in the Loan Agreement. B. Effective on August 31, 2001, B of A assigned to UPSC the entire right, title and interest of BofA in and to the Loans under the Loan Agreement. C. Borrower has acknowledged to Lender that Borrower has breached certain provisions of the Loan Agreement (the "Forbearance Events of Default", as that term is hereinafter defined) and that the breach constitutes an Event of Default under the Loan Agreement. D. Borrower has requested that Lender forbear from exercising its rights and remedies under the Loan Agreement, which Lender has agreed to do subject however, to the terms and conditions of this Agreement, including, without limitation, the amendment to the Loan Agreement set forth herein. NOW, THEREFORE, in consideration of the premises, and in order to induce Lender to amend the Loan Agreement pursant to the terms hereof, and for other good and valuable consideration, the receipt and sufficiency of which are hereby achnowledged, the parties hereto hereby agree as follows: 1. Definitions. Unless otherwise defined herein, all capitalized terms and phrases used in this Agreement shall have the same meaning as are specifically set forth in the Loan Agreement. 2. Forbearance Event of Default. As of May 31, 1999, an Event of Default (the "Initial Forbearance Event of Default") occurred under the Loan Agreement; namely the Fixed Maturity Coverage ratio of 1.0 to 1.0 was not maintained in violation of the provisions of Section 9.26 of the Loan Agreement. Notice of this Forbearance Event of Default was provided to Borrower pursuant to various letters from BofA dated August 19, 1999, September 15, 1999, October 20, 1999, and April 28, 2000. In addition, another Event of Default (the "Second Forbearance Event of Default"; the Initial Forbearance Event of Default and the Second Forbearance Event of Default are collectively referred to herein as the "Forbearance Events of Default") occurred as of May 31, 2001 in that Borrower again failed to comply with the Fixed Maturity Coverage ratio of 1.0 to 1.0 as required by the terms of the Loan Agreement. Borrower hereby acknowledges the occurrence and continuance of the Forbearance Events of Default. 3. Forbearance. Lender previously agreed to forbear from exercising any rights and remedies under the Loan Agreement and applicable law because of the Forbearance Events of Default for a limited time period, expiring November 15, 2001, on the terms set forth in the Fourteenth Amendment. By subsequent letter agreement, Lender agreed to extend such forbearance through January 31, 2003. In accordance with the terms hereof, Lender agrees that, notwithstanding the occurrence of the Forbearance Events of Default and until the expiration of the "Forbearance Period" (as hereinafter defined), Lender will temporarily forbear from exercising any rights and remedies under the Loan Documents and applicable law and Lender will continue to make loans to Borrower in accordance with and subject to the terms and conditions of the Loan Agreement, as modified and amended by the terms of this Agreement, as though the Forbearance Event of Defaults had not occurred and did not exist, provided however that in addition to and not in derogation of any of Lender's other rights under the Loan Agreement, Lender hereby specifically reserves the right to unilaterally and in Lender's sole and absolute discretion, impose additional reserves and to reduce the Eligible Inventory Sublimit and other sublimits under the Loan Agreement from time to time. As consideration for Lender's entering into this Agreement and to induce Lender to waive the effect of the Forbearance Events of Default on a temporary basis as set forth herein, Borrower acknowledges and agrees that Lender may take the actions described in the preceding sentence without approval from or notice to Borrower and even if the actions so taken by Lender would otherwise be deemed to be commercially unreasonable, economically burdensome or detrimental to Borrower. Borrower hereby consents to any such action or actions on the part of Lender and irrevocably waives any and all rights that Borrower possesses to object to any such action or actions. Upon termination of the Forbearance Period, Lender's agreement to forbear hereunder shall be null and void and Lender shall be free to exercise its rights and remedies under the Loan Agreement and other Loan Documents and applicable law, immediately and without further notice. As used herein, the term "Forbearance Period" means the period beginning on the date hereof and continuing through December 1, 2003 or any earlier date on which Lender terminates its forbearance hereunder as provided in the following sentence. Lender may terminate its forbearance hereunder prior to December 1, 2003 and exercise its rights and remedies under the Loan Agreement, the other Loan Document and at law if it determines that any of the following events has occurred: (i) any Event of Default, other than the Forbearance Events of Default (and other than a default under any financial covenant set forth in the Loan Agreement), under the Loan Agreement or any of the other Loan Documents; (ii) a "Material Adverse Change" (as that term is hereinafter defined); or (iii) the failure of Borrower to perform, comply with and observe each and every covenant, warranty, duty and obligation of Borrower hereunder. As used herein, the term "Material Adverse Change" means any material adverse change from and after the date hereof in (a) the financial condition, credit, business, prospects, properties or operations of the Borrower,(b) the ability of the Borrower to perform its obligations under the Loan Agreement and the Loan Documents to which it is a party on a timely basis other than with respect to the Forbearance Events of Default, or (c) the value of the Collateral. 4. Amendments to Loan Agreement 4.1 Section 1.1 Definitions. Section 1.1 of the Loan Agreement is hereby amended by deleting therefrom the definitions of "Revolving Loan Facility" and "Total Revolving Loan Facility" and inserting the following definitions in lieu thereof. "Revolving Loan Facility" means $2,000,000. "Total Revolving Loan Facility" means, as of any date of determination thereof, the lesser at such point in time of: (a) the amount of the Revolving Loan Facility and (b) the sum of (i) an amount equal to seventy-two percent (72%) of the Net Amount of Eligible Accounts; provided that the aggregate amount of the Loans made against that portion of Eligible Accounts consisting of Accounts with stated terms greater than net thirty (30) days shall be limited to $250,000, and (ii) the lesser of (A) $1,500,000, and (B) the amount of Eligible Inventory (determine on a first-in-first-out basis) calculated at the lesser of cost or market; provided, that the applicable advance rates against portions of Eligible Inventory shall not exceed the respective percentages set forth below: TYPE OF ELIGIBLE INVENTORY ADVANCE RATE Work in Process 0% Manufactured Parts 0% Purchased Parts 0% Raw Materials 50% Standard Parts 50% Service Parts 50% Finished Goods 60% 4.2 Section 2.1 Total Facility. For all purposes of the Loan Agreement the "Total Facility" shall mean, at any time, the maximum amount of the revolving line of credit made available to Borrower pursuant thereto, as reduced hereby, i.e. $2,000,000, plus the outstanding principal balance of the Term Loan at such time. 4.3 Section 12.1 Term and Termination. Section 12.1 of the Loan Agreement is hereby deleted and the following is substituted in lieu thereof: 12.1 Term and Termination. This agreement shall terminate on December 1, 2003. The Borrower may also terminate this Agreement at any time during its term if: (a) it gives the Lender ten (10) days prior written notice of termination by registered or certified mail; and (b) it pays and performs all Obligations prior to the effective date of termination. The Lender may also terminate this Agreement without notice in accordance with the provisions of paragraph 3 of that certain Forbearance Agreement and Fifteenth Amendment to Loan and Security Agreement, dated as of January 31, 2003, between the Borrower and the Lender. Upon the effective date of termination of this Agreement for any reason whatsoever, all Obligations shall become immediately due and payable. Notwithstanding the termination of this Agreement, until all Obligations are paid and performed in full, the Lender shall retain all of its rights and remedies hereunder (including, without limitation, the Security Interest in and all rights and remedies with respect to all then existing and after- acquired Collateral)." 5. Agreements with Respect to Loans. Lender agrees to continue to make Revolving Loans to Borrower subject to all of the other provisions of the Loan Agreement during the Forbearance Period and subject to the rights Borrower has granted Lender in the Loan Agreement in general and in paragraph 3 in particular relating to the establishment of reserves and the reduction of inventory and other sublimits, provided that notwithstanding anything implied or expressed to the contrary in the Loan Agreement as a result of the Forbearance Events of Default: (a) Lender shall have no obligation to issue Letters of Credit pursuant to Section 2.3(c), provided however, that if Lender chooses to issue any Letters of Credit or if any Letters of Credit are outstanding, the Letter of Credit Fee shall be equal to four percent (4%) per annum of the undrawn face amount of each such Letter of Credit as contemplated in the definition of Default Rate. Except for the change in the amount of the Letter of Credit fee, the provisions of Section 3.6 of the Loan Agreement shall remain in full force and effect with respect to any Letter of Credit issues by Lender; (b) Lender intends to conduct audits of Borrower at regular intervals of approximately every sixty (60) days at Borrower's cost pursuant to Lender's rights under Section 16.9 of the Loan Agreement; (c) Lender shall make no new Capital Expenditure Loan pursuant to Lender's rights under Section 10.2 of the Loan Agreement; and (d) Lender shall not make any LIBOR Rate Loans or convert any Loans into LIBOR Rate Loans pursuant to Lender's rights under Sections 3.3(a)(ii) and 3.3(h) of the Loan Agreement. 6. No Waiver of Forbearance Event of Default. Nothing in this Agreement shall be deemed to waive the Forbearance Events of Default, any other Event of Default, or, except as expressly provided herein, limit or impair Lender's rights or remedies under the Loan Agreement, the Loan Documents, or applicable law, all of which are hereby expressly reserved. 7. Release of Lender. Borrower hereby agrees and acknowledges that (a) Lender has performed all obligations and duties owed to Borrower as of the date hereof; and (b) in consideration of Lender's forbearance and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower fully and forever remises, releases and discharges and does hereby fully and forever remise, release and discharge Lender and each of its subsidiary and affiliated corporations, and each and all of its or their respective directors, officers, employees, attorneys, accountants, consultants, and other agents, of and from all manner of actions, cause and causes of action, expenses, losses, damages, judgments, executions, claims and demands of whatsoever kind or nature, of law or in equity, whether known or unknown, arising out of or relating in any manner, cause or thing whatsoever, which Borrower may have had, or now has, or which the Borrower hereafter can, shall or may have, for or by reason of any manner, cause or thing whatsoever, whenever arising, to and including the date of this Agreement, whether in respect of BofA, in respect of Lender, or otherwise. 8. Event of Default. Borrower hereby acknowledges and agrees that a breach by Borrower of any term, provision, covenant or condition herein set forth or herein required of Borrower to be kept or performed, shall constitute an Event of Default under the Loan Documents. 9. Acknowledgments of Borrower. Borrower hereby acknowledges and agrees that: (a) Borrower has no defense, offset or counter- claim with respect to the payment of any sum owed to Lender, or with respect to the performance or observance of any warranty or covenant contained in the Loan Agreement or any other Loan Document; (b) Lender has performed all obligations and duties owed to Borrower through the date hereof; (c) there is owing by Borrower on the date hereof in respect of the Loans, an aggregate unpaid principal balance of $750,330.57, including (A) $216,059.88 in respect of the Revolving Loans, (B) $534,270.69, in respect of the Term Loan, and (C) $100,000, in respect of Letters of Credit, plus, in each case, accrued interest and fees; and (d) the Loans shall continue to bear interest until paid in full at the Default Rate, which is equal to Reference Rate plus four percent (4%) per annum. 10. Representations and Warranties of Borrower. To induce Lender to amend the Loan Agreement and to consider making future Loans thereunder, Borrower represents and warrants to Lender that: 10.1 Compliance with Loan Agreement. On the date hereof and other than with respect to the Forbearance Events of Default, Borrower is in compliance with all of the terms and provisions set forth in the Loan Agreement (as modified by this Agreement) and no other Default or Event of Default has occurred and is continuing. 10.2 Representations and Warranties under the Loan Agreement. On the date hereof and other than with respect to the Forbearance Event of Default, the representations and warranties set forth in Section 8 of the Loan Agreement are true and correct with the same effect as though such representations and warranties had been made on the date hereof, except to the extent that such representations and warranties expressly relate to an earlier date. 10.3 Corporate Authority. Borrower has full power and authority to consummate this Agreement, and to make the borrowings under the Loan and has full power and authority to incur and perform the obligations provided for under the Loan Agreement and this Agreement, all of which have been duly authorized by all proper and necessary corporate action. No consent or approval of stockholders or of any public authority or regulatory body which has not been obtained is required as a condition to the validity or enforceability of this Agreement. 10.4 Agreement as Binding Agreement. This Agreement and the Loan Agreement (as modified by this Agreement) constitute the valid and legally binding obligations of Borrower fully enforceable against Borrower in accordance with their respective terms. 10.5 No Conflicting Agreements. The execution and performance by Borrower of this Agreement, and the borrowing by Borrower under the Loan will not, (i) to the best knowledge of Borrower, violate any provision of law, any order of any court or other agency of government, or the Articles of Incorporation or Bylaws of Borrower; or (ii) violate any indenture, contract, agreement or other instrument to which Borrower is a party, or by which any of its property is bound, or be in conflict with, result in a breach of or constitute (with due notice and or lapse of time) a default under, any such indenture, contract, agreement or other instrument; or (iii) result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of Borrower, other than in favor of Lender. 11. Effectiveness of this Agreement. The agreements set forth above shall become effective as of the date of the execution of this Agreement. Lender shall receive all of the following, each duly executed and dated the date hereof, in form and substance satisfactory to the Lender: (a) this Agreement; and (b) such other instruments, documents, waivers and consents as Lender reasonably may request. 12. Effect on Loan Agreement. Except as specifically amended hereby, the terms and provisions of the Loan Agreement are in all other respects ratified and confirmed and remain in full force and effect. All references to the Loan Agreement in any document, instrument or agreement executed in connection with the Loan Agreement shall be deemed to refer to the Loan Agreement as qualified hereby. 13. Forbearance Fee: Lender's Fees and Expenses. Borrower shall pay to Lender on the date hereof a fee in the amount of $10,000 in consideration of Lender's extension of its previous forbearance pursuant to this Agreement. Borrower hereby agrees to pay all reasonable out-of-pocket expenses incurred by Lender in connection with the preparation, negotiation and consummation of this Agreement, and all other documents related hereto (whether or not any borrowing under the Loan Agreement as amended shall be consummated), including, without limitation, (i) the reasonable fees and expenses of Lender's counsel (including the allocated cost and expense of in-house counsel), and any filing fees and recordation tax required in connection with the filing of any documents necessary to consummate the provisions of this Agreement, (ii) the costs and expenses of Lender or its counsel incurred conducting searches of the public records to ascertain whether any Liens not constituting Permitted Liens exist; and (iii) the costs and expenses of Lender incurred prior to or subsequent to the Closing Date in conducting field examinations and Collateral evaluations, including the costs of obtaining updated appraisals of property, plant and equipment of Borrower. 14. Successors. This Agreement shall be binding upon and inure to the benefit of Borrower, Lender and their respective successors and assigns. 15. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Illinois, without regard to the conflict of laws principles thereof. 16. Venue and Waiver of Jury Trial. The provisions of Section 16.4 and 16.5 of the Loan Agreement are incorporated herein and made a part hereof and shall govern and apply to this Agreement as if set forth in full herein. 17. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed original and all of which taken together shall constitute one and the same document. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. ART'S-WAY MANUFACTURING CO., INC. By: /s/ John C. Breitung Name: John C. Breitung Title: Chief Executive Officer UPS CAPITAL CORPORATION the successor to Bank of America National Assocation By: /s/ Don Whitehead Name: Don Whitehead Title: Managing Director, Portfolio EX-99.1 CHARTER 3 ex991fx.txt Exhibit 99.1 CERTIFICATION OF FINANCIAL STATEMENTS Pursuant to 18 U.S.C. 63 1350, the President and Chief Executive Officer and the Finance Manager of Art's-Way Manufacturing Co., Inc. (the "Company"), herebycertify that this Form 10-Q and the financial statements thereto fully comply with the requirements of Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q and the financial statements thereto fairly present, in all material respects, the financial condition and results of operations of the Company. By: /s/ John C. Breitung By: /s/ Seth F. LaBore Name: John C. Breitung Name: Seth F. LaBore President and Chief Finance Manger Executive Officer April 14, 2003 April 14, 2003 -----END PRIVACY-ENHANCED MESSAGE-----