)

Loan and Credit Agreements

The Company maintains

two

revolving lines of credit and

two

term loans with Bank Midwest. The Company also previously maintained a term loan with The First National Bank of West Union.

Bank Midwest Revolving Lines of Credit and Term Loans

The Company maintains a credit facility with Bank Midwest consisting of a

$5,000,000

revolving line of credit (the

“2017

Line of Credit”), and a

$2,600,000

term loan due

October 1, 2037 (

the “Term Loan”). On

May 31, 2020,

the balance of the

2017

Line of Credit was

$3,130,530

with

$1,869,470

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, 2020,

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

4.25%

per annum. The

2017

Line of Credit was most recently renewed on

March 30, 2020.

The

2017

Line of Credit matures on

March 30, 2021

and requires monthly interest-only payments.

The Term Loan accrues interest at a rate of

5.00%

for the

first

sixty

months. Thereafter, the Term 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. The Term 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 Term 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 the Term Loan, for an annual fee of

of the personally guaranteed amount. The initial guarantee fee will be amortized over the life of the Term 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

4.25%

per annum. The

2019

Line of Credit was recently renewed on

February 13, 2020.

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, 2021.

As of

May 31, 2020,

the funds on the

2019

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

April 20, 2020,

the Company obtained a loan in the amount of

$1,242,900

from Bank Midwest in connection with the U.S. Small Business Administration’s Paycheck Protection Program (the “PPP Loan”). A portion of the PPP Loan

may

be forgiven based on the Company’s use of the proceeds of the PPP Loan for its payroll costs and other expenses in accordance with the requirements of the Paycheck Protection Program. If the PPP Loan is

not

fully forgiven, the Company will remain liable for the full and punctual payment of the outstanding principal balance plus accrued and unpaid interest. The Company expects all or a significant portion of the PPP loan to be forgiven. The PPP Loan accrues interest at a rate per annum equal to

1.00%,

the outstanding principal balance plus accrued and unpaid interest is due on

April 20, 2022.

The PPP Loan is unsecured. The PPP Loan

may

be prepaid at any time prior to maturity with

prepayment penalties.

June 18, 2020,

and again on

June 24, 2020

the Company executed the standard loan documents required for securing loans offered by the U.S. Small Business Administration under its Economic Injury Disaster Loan (EIDL) assistance program in light of the impact of COVID-

pandemic on the Company’s business. Two loans were executed on

June 18, 2020

with principal amounts of

$150,000

each, with a

third

loan being executed on

June 24, 2020

with a principal amount of

$150,000

with proceeds being used for working capital purposes. Interest accrues at the rate of

3.75%

per annum and will accrue from the date of inception. Installment payments, including principal and interest, are due monthly beginning

June 18, 2021

(

twelve

months from the date of the EIDL Loans) and

June 24, 2021

in the amount of

$731

(per loan). The balance of principal and interest is payable

years from the date of the EIDL. The EIDL’s are secured by a security interest on all of the Company’s assets.

Each of the

2017

Line of Credit and the 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. The PPP Loan is governed by the terms of a Promissory Note, dated

April 20, 2020,

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 mortgage on its Canton, Ohio property held by Ohio Metal Working Products/Art’s-Way Inc. The

2019

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

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 also must receive bank approval for purchases or sales of equipment over

$100,000

annually and maintain reasonable salaries and owner compensation. The Company was in compliance with all covenants as of

November 30, 2019

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, 2020.

SBA Economic Injury Disaster Loans

June 18, 2020,

and again on

June 24, 2020

the Company executed the standard loan documents required for securing loans offered by the U.S. Small Business Administration under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-

pandemic on the Company’s business. Two loans were executed on

June 18, 2020

with principal amounts of

$150,000

each, with a

third

loan being executed on

June 24, 2020

with a principal amount of

$150,000.

Proceeds from these EIDLs are being used for working capital purposes. Interest accrues at the rate of

3.75%

per annum and will accrue from the date of inception. Installment payments, including principal and interest, are due monthly beginning

June 18, 2021 (

twelve

months from the date of the EIDLs) and

June 24, 2021

in the amount of

$731

per EIDL. The balance of principal and interest is payable

years from the date of the EIDL. The EIDLs are secured by a security interest on all of the Company’s assets. Each EIDL is governed by the terms of a separate Promissory Note, dated either

June 18, 2020

June 24, 2020,

as applicable, entered into between the Company or the applicable subsidiary.

First National Bank of West Union 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, 2020		November 30, 2019
Bank Midwest loan payable in monthly installments of $17,271 including interest at 5.00%, due October 1, 2037	$	2,393,503	$	2,435,993
Bank Midwest loan payable in one principal payment including interest at 1.00%, due April 20, 2022		1,242,900		-
Total term debt	$	3,636,403	$	2,435,993
Less current portion of term debt		87,909		85,401
Term debt, excluding current portion	$	3,548,494	$	2,350,592

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

November 30:

Year	Amount
2020	$	42,911
2021		90,179
2022		1,337,758
2023		99,781
2024		104,665
2025 and thereafter		1,961,109
	$	3,636,403