)

Loan and Credit Agreements

The Company maintains

two

revolving lines of credit and a term loan with Bank Midwest. The Company also previously maintained a term loan with The First National Bank of West Union.

Bank Midwest Revolving Line

of Credit and Term Loans

September 28, 2017,

the Company entered into a credit facility with Bank Midwest, which superseded and replaced in its entirety the Company’s previous credit facility with U.S. Bank. The Bank Midwest credit facility initially consisted of a

$5,000,000

revolving line of credit (the

“2017

Line of Credit”), a

$2,600,000

term loan due

October 1, 2037,

and a

$600,000

term loan due

October 1, 2019.

The

2017

Line of Credit is being used for working capital purposes. On

March 29, 2018,

the Company paid in full the

$600,000

term loan due

October 1, 2019

using proceeds from the sale of the Company’s Dubuque, Iowa property. The payment consisted of

$596,563

in principal and

$2,328

in interest.

May 31, 2019,

the balance of the

2017

Line of Credit was

$3,599,530

with

$1,400,470

remaining available, as

may

be limited by the borrowing base calculation. The

2017

Line of Credit borrowing base is an amount equal to

75%

of accounts receivable balances (discounted for aged receivables), plus

50%

of inventory, less any outstanding loan balance on the

2017

Line of Credit. At

May 31, 2019,

the

2017

Line of Credit was

not

limited by the borrowing base calculation. Any unpaid principal amount borrowed on the

2017

Line of Credit accrues interest at a floating rate per annum equal to

1.00%

above the Wall Street Journal rate published in the money rates section of the Wall Street Journal. The interest rate floor is set at

4.25%

per annum and the current interest rate is

6.50%

per annum. The

2017

Line of Credit was most recently renewed on

March 30, 2019.

The

2017

Line of Credit is payable upon demand by Bank Midwest, and monthly interest-only payments are required. If

earlier demand is made, the unpaid principal and accrued interest is due on

March 30, 2020.

The

$2,600,000

term loan accrues interest at a rate of

5.00%

for the

first

sixty

months. Thereafter, this loan will accrue interest at a floating rate per annum equal to

0.75%

above the Wall Street Journal rate published the money rates section of the Wall Street Journal. The interest rate floor is set at

4.15%

per annum and the interest rate

may

only be adjusted by Bank Midwest once every

five

years. Monthly payments of

$17,271

for principal and interest are required. This loan is also guaranteed by the United States Department of Agriculture (“USDA”), which required an upfront guarantee fee of

$62,400

and requires an annual fee of

0.5%

of the unpaid balance. As part of the USDA guarantee requirements, shareholders owning more than

20%

are required to personally guarantee a portion of the loan, in an amount equal to their stock ownership percentage. J. Ward McConnell Jr., the Vice Chairman of the Board of Directors and a shareholder owning more than

20%

of the Company’s outstanding stock, is guaranteeing approximately

38%

of this loan, for an annual fee of

of the personally guaranteed amount. The initial guarantee fee will be amortized over the life of the loan, and the annual fees and personally guaranteed amounts are expensed monthly.

February 13, 2019,

the Company opened a

$4,000,000

revolving line of credit (the

“2019

Line of Credit”) with Bank Midwest in connection with bonding obligations for the Company’s performance of a large modular laboratory construction project. Funds under the

2019

Line of Credit will be undisbursed to the Company and will be held by Bank Midwest in connection with an Irrevocable Letter of Credit issued by Bank Midwest for the project. The

2019

Line of Credit accrues interest at a floating rate per annum equal to

1.00%

above the Wall Street Journal rate published in the money rates section of the Wall Street Journal. The interest rate floor is set at

4.25%

per annum and the current interest rate is

6.50%

per annum. The

2019

Line of Credit is payable upon demand by Bank Midwest. If

earlier demand is made, the unpaid principal and accrued interest will be payable in

one

payment, due on

February 13, 2020.

As of

May 31, 2019,

the funds on the

2019

Line of Credit remain undisbursed and are held by Bank Midwest.

Each of the

2017

Line of Credit and the

$2,600,000

term loan are governed by the terms of a separate Promissory Note, dated

September 28, 2017,

entered into between the Company and Bank Midwest. The

2019

Line of Credit is governed by the terms of a Promissory Note, dated

February 13, 2019,

entered into between the Company and Bank Midwest.

In connection with the

2017

Line of Credit, the Company, Art’s-Way Scientific Inc. and Ohio Metal Working Products/Art’s-Way Inc. each entered into a Commercial Security Agreement with Bank Midwest, dated

September 28, 2017,

pursuant to which each granted to Bank Midwest a

first

priority security interest in certain inventory, equipment, accounts, chattel paper, instruments, letters of credit and other assets to secure the obligations of the Company under the line of credit. Each of Art’s-Way Scientific Inc. and Ohio Metal Working Products/Art’s-Way Inc. also agreed to guarantee the obligations of the Company pursuant to the

2017

Line of Credit, as set forth in Commercial Guaranties, each dated

September 28, 2017.

The

2019

Line of Credit is also secured by these existing security documents.

To further secure the

2017

Line of Credit, the Company granted Bank Midwest a

second

mortgage on its West Union, Iowa property and Ohio Metal Working Products/Art’s-Way Inc. granted Bank Midwest a mortgage on its property located in Canton, Ohio. The mortgage on the West Union property was released in conjunction with the sale of that property on

December 14, 2018.

The

2019

Line of Credit is also secured by the mortgage on the Canton, Ohio property. The

$2,600,000

term loan is secured by a mortgage on the Company’s Armstrong, Iowa and Monona, Iowa properties. Each mortgage is governed by the terms of a separate Mortgage, dated

September 28, 2017,

and each property is also subject to a separate Assignment of Rents, dated

September 28, 2017.

If the Company or its subsidiaries (as guarantors pursuant to the Commercial Guaranties) commits an event of default with respect to the promissory notes and fails or is unable to cure that default, Bank Midwest

may

immediately terminate its obligation, if any, to make additional loans to the Company and

may

accelerate the Company’s obligations under the promissory notes. Bank Midwest shall also have all other rights and remedies for default provided by the Uniform Commercial Code, as well as any other applicable law and the various loan agreements. In addition, in an event of default, Bank Midwest

may

foreclose on the mortgaged property.

Bank Midwest Loan Covenants

Compliance with Bank Midwest covenants is measured annually at

November 30.

The terms of the Bank Midwest loan agreements require the Company to maintain a minimum working capital ratio of

1.75,

while maintaining a minimum of

$5,100,000

of working capital. Additionally, a maximum debt to worth ratio of

must be maintained, with a minimum of

40%

tangible balance sheet equity, with variations subject to mutual agreement. The Company is also required to maintain a minimum debt service coverage ratio of

1.25,

with a

0.10

tolerance. The Company was in compliance with all covenants as of

November 30, 2018

other than the debt service coverage ratio. Bank Midwest issued a waiver forgiving the noncompliance, and

event of default has occurred. The next measurement date is

November 30, 2019.

Iowa Finance Authority Term Loan

May 1, 2010,

the Company obtained a

$1,300,000

loan to finance the purchase of an additional facility located in West Union, Iowa to be used as a distribution center, warehouse facility, and manufacturing plant for certain products under the Art’s-Way brand. The loan was secured by a mortgage on the Company’s West Union Facility, pursuant to a Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement dated

May 1, 2010

between the Company and The First National Bank of West Union.

December 14, 2018,

the Company repaid this loan in full in connection with the sale of the West Union, Iowa facility.

A summary of the Company’s term debt is as follows:

	May 31, 2019		November 30, 2018
Bank Midwest loan payable in monthly installments of $17,271 including interest at 5.00%, due October 1, 2037	$	2,476,752	$	2,517,510
Iowa Finance Authority loan payable in monthly installments of $12,500 including interest at 2.75%, due June 1, 2020		-		232,967
Total term debt	$	2,476,752	$	2,750,477
Less current portion of term debt		83,250		227,459
Term debt, excluding current portion	$	2,393,502	$	2,523,018

A summary of the minimum maturities of term debt follows for the years ending

November 30:

Year	Amount
2019		40,761
2020		85,401
2021		90,179
2022		94,858
2023		99,781
2024 and thereafter		2,065,772
	$	2,476,752