EXHIBIT 10.3

BUSINESS LOAN AGREEMENT

Borrowers:
Art’s-Way Manufacturing Co., Inc.
Lender:
West Bank
 
5556 Hwy. 9 W
 
1601 22nd Street
 
Armstrong, IA 50514
 
West Des Moines, IA 50255
       
Guarantor:
Art’s-Way Vessels, Inc.
Art’s-Way Scientific, Inc.
 
7010 Chavenelle Road
203 Oak Street
 
Dubuque, IA 52002
Monona, IA 52159

 

--------------------------------------------------------------------------------

 
THIS BUSINESS LOAN AGREEMENT dated June 8, 2009, is made and executed between
Art’s-Way Manufacturing Co., Inc. (“Borrower”) and West Bank (“Lender”) on the
following terms and conditions.

Borrower has made four prior commercial loans from Lender and has applied to
Lender for a renewal and increased $6,000,000 commercial line of credit
(collectively “Loans” and each individually a “Loan”).  Borrower understands and
agrees that:  (A) In granting, renewing, or extending the Loans, Lender has
relied upon Borrower’s representations, warranties, and agreements as set forth
in the loan documents and/or this Agreement; (B) the granting, renewing, or
extending of any Loan by Lender at all times shall be subject to Lender’s sole
judgment and discretion; and (C) all of the Loans shall hereby become and remain
subject to the terms and conditions of this Agreement.

TERM.  This Agreement shall be effective as of the date stated above and shall
continue in full force and effect until such time as all of Borrower’s
obligations to Lender have been paid in full, including principal, interest,
costs, expenses, attorneys’ fees, and other fees and charges, or until such time
as the parties may agree in writing to terminate this Agreement.

CONDITIONS PRECEDENT TO EACH LINE OF CREDIT ADVANCE.  Lender’s obligation to
make the initial Advance and each subsequent Advance under the line of credit
Loan shall be subject to the fulfillment to Lender’s satisfaction of all of the
conditions set forth in this Agreement and in the Related
Documents.  Specifically, but without limitation:

Borrower’s Authorization.  Borrower shall have provided in form and substance
satisfactory to Lender properly certified resolutions, duly authorizing the
execution and delivery of this Agreement, the Note, and the Related
Documents.  In addition, Borrower shall have provided such other resolutions,
authorizations, documents, and instruments as Lender or Lender’s counsel may
require.
 
Loan Documents.  Borrower shall provide to Lender the following documents for
the line of credit Loan:  (1) the Note; (2) Security Agreements granting to
Lender security interests in the Collateral; (3) financing statements and all
other documents perfecting Lender’s Security Interests; (4) evidence of
insurance as required below; (5) guaranties by Art’s-Way Vessels, Inc. and
Art’s-Way Scientific, Inc.; (6) together with all such Related Documents as
Lender may require for the Loan; all in form and substance satisfactory to
Lender and Lender’s counsel.

 

--------------------------------------------------------------------------------

 

Business Loan Agreement (Continued)
Loan No. ___________________
 
No Event of Default.  There shall not exist at the time of any Advance a
condition which would constitute an Event of Default under this Agreement, any
of the Loans, or any Related Document.
 
Payment of Fees and Expenses.  Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in this
Agreement or any Related Document.
 
Representations and Warranties.  The representations and warranties set forth in
this Agreement, in the Related Documents, and in any document or certificate
delivered to Lender concerning the Loans are true and correct.
 
REPRESENTATIONS AND WARRANTIES.  Borrower represents and warrants to Lender that
as of the date of this Agreement, the date of each disbursement of loan
proceeds, and at all times any indebtedness exists:

Assumed Business Names.  Borrower does not operate under any assumed business
names.
 
Authorization.  Borrower’s execution, delivery, and performance of this
Agreement and all the Related Documents have been duly authorized by all
necessary action by Borrower and do not conflict with, result in a violation of,
or constitute a default under (1) any provision of (a) Borrower’s articles of
organization or membership agreements, or (b) any agreement or other instrument
binding upon Borrower or (2) any law, governmental regulation, court decree, or
order applicable to Borrower or to Borrower’s properties.
 
Binding Effect.  This Agreement, the Note, all Security Agreements, and all
Related Documents are binding upon the signers thereof, as well as upon their
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
 
Financial Information.  Each of Borrower’s financial statements supplied to
Lender truly and completely disclosed Borrower’s financial condition as of the
date of the statement, and there has been no material adverse change in
Borrower’s financial condition subsequent to the date of the most recent
financial statement supplied to Lender.  Borrower has no material contingent
obligations except as disclosed in such financial statements.

 
- 2 -

--------------------------------------------------------------------------------

 

Business Loan Agreement (Continued)
Loan No. ___________________

 
Hazardous Substances.  Except as disclosed to and acknowledged by Lender in
writing, Borrower represents and warrants that:  (1) During the period of
Borrower’s ownership of the Collateral, there has been no use, generation,
manufacture, storage, treatment, disposal, release or threatened release of any
Hazardous Substance by any person on, under, about or from any of the
Collateral; (2) Borrower has no knowledge of, or reason to believe that there
has been (a) any breach or violation of any Environmental Laws; (b) any use,
generation, manufacture, storage, treatment, disposal, release or threatened
release of any Hazardous Substance on, under, about or from the Collateral by
any prior owners or occupants of any of the Collateral; or (c) any actual or
threatened litigation or claims of any kind by any person relating to such
matters; and (3) Neither Borrower nor any tenant, contractor, agent or other
authorized user of any of the Collateral shall use, generate, manufacture,
store, treat, dispose of or release any Hazardous Substance on, under, about or
from any of the Collateral unless any such activity shall be conducted in
compliance with all applicable federal, state, and local laws, regulations, and
ordinances, including without limitation, all Environmental Laws.  Borrower
authorizes Lender and its agents to enter upon the Collateral to make such
inspections and tests as Lender may deem appropriate to determine compliance
with this section of the Agreement.  Any inspections or tests made by Lender
shall be at Borrower’s expense and for Lender’s purposes only and shall not be
construed to create any responsibility or liability on the part of Lender to
Borrower or to any other person.  The representations and warranties contained
herein are based on Borrower’s due diligence in investigating the Collateral for
hazardous waste and Hazardous Substances.  Borrower hereby (1) releases and
waives any future claims against Lender for indemnity or contribution in the
event Borrower becomes liable for cleanup or other costs under any such laws,
and (2) agrees to indemnify, defend, and hold harmless Lender against any and
all claims, losses, liabilities, damages, penalties, and expenses which Lender
may directly or indirectly sustain or suffer resulting from a breach of this
section of the Agreement or as a consequence of any use, generation,
manufacture, storage, disposal, release or threatened release of a hazardous
waste or substance on the Collateral.  The provisions of this section of the
Agreement, including the obligation to indemnify and defend, shall survive the
payment of the Indebtedness and the termination, expiration or satisfaction of
this Agreement and shall not be affected by Lender’s acquisition of any interest
in any of the Collateral, whether by foreclosure or otherwise.
 
Legal Effect.  This Agreement and every instrument or agreement Borrower is
required to give under this Agreement when delivered will constitute legal,
valid, and binding obligations of Borrower enforceable against Borrower in
accordance with their respective terms.
 
Lien Priority.  Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or permitted
the filing or attachment of any Security Interests on or affecting any of the
Collateral directly or indirectly securing repayment of the Loans that would be
prior or that may in any way be superior to Lender’s Security Interests and
rights in and to the Collateral.
 
Litigation and Claims.  No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against Borrower
is pending or threatened, and no other event has occurred which may materially
adversely affect Borrower’s financial condition or properties, other than
litigation, claims, or other events, if any, that have been disclosed to and
acknowledged by Lender in writing.

 
- 3 -

--------------------------------------------------------------------------------

 

Business Loan Agreement (Continued)
Loan No. ___________________

 
Organization.  Borrower is a corporation which is, and at all times shall be,
duly organized, validly existing, and in good standing under and by virtue of
the laws of the State of Delaware.  Borrower is duly authorized to transact
business in all other states in which Borrower is doing business, having
obtained all necessary filings, governmental licenses, and approvals for each
state in which Borrower is doing business.  Specifically, Borrower is, and at
all times shall be, duly qualified as a foreign corporation in all states in
which the failure to so qualify would have a material adverse effect on its
business or financial condition.  Borrower has the full power and authority to
own its properties and to transact the business in which it is presently engaged
or presently proposes to engage.  Borrower maintains its principal office and
place of business at 5569 Hwy 9 West, Armstrong, Iowa.  Unless Borrower has
designated otherwise in writing, the principal office is the office at which
Borrower keeps its books and records including its records concerning the
Collateral.  Borrower will notify Lender in writing prior to any change in its
principal place of business, the location of Borrower’s state of organization,
or any change in Borrower’s name.  Borrower shall do all things necessary to
preserve and to keep in full force and effect its existence, rights and
privileges, and shall comply with all regulations, rules, ordinances, statutes,
orders and decrees of any governmental or quasi-governmental authority or court
applicable to Borrower and Borrower’s business activities.
 
Properties.  Except as contemplated by this Agreement or as previously disclosed
in Borrower’s financial statements or in writing to Lender and as accepted by
Lender, and except for property tax liens for taxes not presently due and
payable, Borrower owns and has good title to all of Borrower’s properties free
and clear of all Security Interests, and has not executed any security documents
or financing statements relating to such properties.  All of Borrower’s
properties are titled in Borrower’s legal name, and Borrower has not used or
filed a financing statement under any other name.
 
Securities Laws.  To the best of Borrower’s knowledge, Borrower is in full
compliance with all securities laws applicable to Borrower.
 
Subsidiaries.  Borrower has two wholly-owned subsidiaries:  Art’s-Way Vessels,
Inc. and Art’s-Way Scientific, Inc.
 
Taxes.  To the best of Borrower’s knowledge, all of Borrower’s tax returns and
reports that are or were required to be filed, have been filed, and all taxes,
assessments and other governmental charges have been paid in full, except those
presently being or to be contested by Borrower in good faith in the ordinary
course of business and for which adequate reserves have been provided.
 
AFFIRMATIVE COVENANTS.  Borrower covenants and agrees with Lender that, so long
as this Agreement remains in effect, Borrower will:

Accounts.  Maintain its primary deposit accounts and credit card accounts at
Lender.

 
- 4 -

--------------------------------------------------------------------------------

 

Business Loan Agreement (Continued)
Loan No. ___________________

 
Additional Assurances.  Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, assignments, financing
statements, instruments, documents and other agreements or documents as Lender
or Lender’s counsel may reasonably require to create, evidence, and perfect
Lender’s security and collateral interests in all assets of Borrower and its
subsidiaries.
 
Additional Information.  Furnish such additional information and statements, as
Lender may request from time to time.
 
Collateral.  Grant and maintain first priority security and mortgage interests
to Lender in all assets of Borrower and its subsidiaries subject only to
Permitted Liens, if any.
 
Compliance Certificate.  Unless waived in writing by Lender, provide Lender at
least annually, with a certificate executed by Borrower’s chief financial
officer, or other officer or person acceptable to Lender, certifying that the
representations and warranties set forth in this Agreement are true and correct
as of the date of the certificate and further certifying that, as of the date of
the certificate, no Event of Default exists under this Agreement.
 
Compliance with Governmental Requirements.  Comply with all laws, ordinances,
and regulations, now or hereafter in effect, of all governmental authorities
applicable to the conduct of Borrower’s properties, businesses, and operations,
and to the use or occupancy of the Collateral, including without limitation, the
Americans With Disabilities Act.  Borrower may contest in good faith any such
law, ordinance, or regulation and withhold compliance during any proceedings,
including appropriate appeals, so long as Borrower has notified Lender in
writing prior to doing so and so long as, in Lender’s sole opinion, Lender’s
interests in the Collateral are not jeopardized.  Lender may require Borrower to
post adequate security or a surety bond, reasonably satisfactory to Lender, to
protect Lender’s interest.
 
Cross-collateralization.  Make, execute, and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, assignments, financing
statements, instruments, documents and other agreements or documents as Lender
or Lender’s counsel may reasonably require to completely cross-collateralize the
Loans.
 
Environmental Compliance and Reports.  Borrower shall comply in all respects
with any and all Environmental Laws; not cause or permit to exist, as a result
of an intentional or unintentional action or omission on Borrower’s part or on
the part of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless such
environmental activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within thirty
(30) days after receipt thereof a copy of any notice, summons, lien, citation,
directive, letter or other communication from any governmental agency or
instrumentality concerning any intentional or unintentional action or omission
on Borrower’s part in connection with any environmental activity whether or not
there is damage to the environment and/or other natural resources.

 
- 5 -

--------------------------------------------------------------------------------

 

Business Loan Agreement (Continued)
Loan No. ___________________

 
Environmental Studies.  Promptly conduct and complete, at Borrower’s expense,
all such investigations, studies, samplings and testings as may be requested by
Lender relative to any substance, or any waste or by-product of any substance
defined as toxic or a hazardous substance under applicable federal, state, or
local law, rule, regulation, order or directive, at or affecting any property or
any facility owned, leased, or used by Borrower.
 
Financial Covenants.  Maintain a minimum debt-service coverage ratio of 1.5
calculated as of Borrower’s fiscal year end.  The ratio shall be calculated as
(net income plus interest expenses plus non-cash charges) divided by (total
principal and interest payments due during succeeding fiscal year except loan
maturities).  Maintain a maximum debt to tangible net worth ratio of 1.5 and a
minimum tangible net worth of $11,500,000, both calculated as of Borrower’s
fiscal year end.
 
Financial Records.  Maintain its books and records in accordance with GAAP,
applied on a consistent basis, and permit Lender to examine and audit Borrower’s
books and records at all reasonable times.
 
Financial Statements.  Furnish Lender with the following:
 
Annual Statements.  As soon as available, but in no event later than
one-hundred-twenty (120) days after the end of each fiscal year, Borrower’s
balance sheet and income statement for the year ended, audited by a certified
public accountant satisfactory to Lender.
 
Interim Statements.  As soon as available, but in no event later than thirty
(30) days after the end of each month, Borrower’s and each subsidiary’s balance
sheet, income statement, and accounts receivable aging schedule, prepared by
Borrower.
 
All financial reports required to be provided under this Agreement shall be
prepared in accordance with GAAP, applied on a consistent basis, and certified
by Borrower as being true and correct.
 
Guaranties.  Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, executed by the guarantors named
below, on Lender’s forms, and in the amounts and under the conditions set forth
in those guaranties.
 
Inspection.  Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loans and Borrower’s other properties and
to examine or audit Borrower’s books, accounts, and records and to make copies
and memoranda of Borrower’s books, accounts, and records.  If Borrower now or at
any time hereafter maintains any records (including without limitation computer
generated records and computer software programs for the generation of such
records) in the possession of a third party, Borrower, upon request of Lender,
shall notify such party to permit Lender free access to such records at all
reasonable times and to provide Lender with copies of any records it may
request, all at Borrower’s expense.

 
- 6 -

--------------------------------------------------------------------------------

 

Business Loan Agreement (Continued)
Loan No. ___________________

 
Insurance.  Maintain fire and other risk insurance, public liability insurance,
and such other insurance as Lender may require with respect to Borrower’s
properties and operations, in form, amounts, coverages and with insurance
companies acceptable to Lender.  Borrower, upon request of Lender, will deliver
to Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least thirty (30) days prior written notice
to Lender.  Each insurance policy also shall include an endorsement providing
that coverage in favor of Lender will not impaired in any way by any act,
omission or default of Borrower or any other person.  In connection with all
policies covering assets in which Lender holds or is offered a security interest
for the Loans, Borrower will provide Lender with such lender’s loss payable or
other endorsements as Lender may require.
 
Insurance Reports.  Furnish to Lender, upon request of Lender, reports on each
existing insurance policy showing such information as Lender may reasonably
request, including without limitation the following:  (1) the name of the
Insurer; (2) the risks insured; (3) the amount of the policy; (4) the properties
insured; (5) the then current property values on the basis of which insurance
has been obtained, and the manner of determining those values; and (6) the
expiration date of the policy.  In addition, upon written request of Lender
(however not more often than annually), Borrower will have an independent
appraiser satisfactory to Lender determine, as applicable, the actual cash value
or replacement cost of any Collateral.  The cost of such appraisal shall be paid
by Borrower.
 
Loan Proceeds.  Use all proceeds of the Loans solely for the business operations
of Borrower and its subsidiaries, unless otherwise specifically agreed to in
advance by Lender in writing.  The line of credit Loan proceeds shall be used
for working capital, letter of credit, and corporate credit card purposes of
Borrower and its subsidiaries.
 
Names of Guarantors.  Art’s-Way Vessels, Inc. and Art’s-Way Scientific, Inc.
 
Notices of Claims and Litigation.  Promptly inform Lender in writing of (1) all
material adverse changes in the financial condition of Borrower or either
Guarantor, and (2) all existing and all threatened litigation, claims,
investigations, administrative proceedings or similar actions affecting Borrower
or any Guarantor which could materially affect the financial condition of
Borrower or the financial condition of any Guarantor.
 
Operations.  Maintain executive and management personnel with substantially the
same qualifications and experience as the present executive and management
personnel; provide written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a reasonable and prudent
manner.
 
Other Agreements.  Comply with all terms and conditions of all other material
agreements, whether now or hereafter existing, between Borrower and any other
entity and notify Lender immediately in writing of any default in connection
with any other such agreements.

 
- 7 -

--------------------------------------------------------------------------------

 

Business Loan Agreement (Continued)
Loan No. ___________________

 
Performance.  Perform and comply, in a timely manner, with all terms,
conditions, and provisions set forth in this Agreement, in the Related
Documents, and in all other instruments and agreements between Borrower and
Lender.  Borrower shall notify Lender immediately in writing of any default in
connection with any such agreement.
 
Taxes, Charges and Liens.  Pay and discharge when due all of its indebtedness
and obligations, including without limitation all assessments, taxes,
governmental charges, levies and liens, of every kind and nature, imposed upon
Borrower or its properties, income, or profits, prior to the date on which
penalties would attach, and all lawful claims that, if unpaid, might become a
lien or charge upon any of Borrower’s properties, income, or profits.
 
LENDER’S EXPENDITURES.  If any action or proceeding is commenced that would
materially affect Lender’s interest in the Collateral or if Borrower fails to
comply with any provision of this Agreement or any Related Documents, including
but not limited to Borrower’s failure to discharge or pay when due any amounts
Borrower is required to discharge or pay under this Agreement or any Related
Documents, Lender on Borrower’s behalf may (but shall not be obligated to) take
any action that Lender deems appropriate, including but not limited to
discharging or paying all taxes, liens, security interests, encumbrances and
other claims, at any time levied or placed on any Collateral and paying all
costs for insuring, maintaining and preserving any Collateral.  All such
expenditures incurred or paid by Lender for such purposes will then bear
interest at the rate charged under the Note from the date incurred or paid by
Lender to the date of repayment by Borrower.  All such expenses will become a
part of the Indebtedness and, at Lender’s option, will (A) be payable on demand;
(B) be added to the balance of the Note and be apportioned among and be payable
with any installment payments to become due during either (1) the term of any
applicable insurance policy; or (2) the remaining term of the Note; or (C) be
treated as a balloon payment which will be due and payable at the Note’s
maturity.

NEGATIVE COVENANTS.  Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower and Guarantors shall not, without the prior
written consent of Lender:

Borrowing Base.  Allow the amount advanced pursuant to the line of credit Loan
to exceed the sum of (60% of Borrower’s accounts receivable less than 90 days
old) plus (60% of Borrower’s finished goods inventory) plus (50% of Borrower’s
raw material inventory and work-in-process) calculated at each month end.
 
Capital Expenditures.  Make or contract to make capital expenditures, including
leasehold improvements, in any fiscal year in excess of $500,000 or incur
liability for rentals of property (including both real and personal property) in
an amount which, together with capital expenditures, shall in any fiscal year
exceed such sum.  This limitation shall not include expenditures for the
building addition completed in 2009 and the planned roof replacement expected to
be completed in 2009 in the amounts disclosed to Lender before the effective
date of this Agreement.

 
- 8 -

--------------------------------------------------------------------------------

 

Business Loan Agreement (Continued)
Loan No. ___________________
 
Continuity of Operations.  (1) Engage in any business activities substantially
different than those in which Borrower and its subsidiaries are presently
engaged, (2) cease operations, liquidate, merge, transfer, acquire or
consolidate with any other entity, change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business, or (3) make any distribution
with respect to any capital account except from a subsidiary to Borrower,
whether by reduction of capital or otherwise.
 
Indebtedness and Liens.  (1) Except for trade debt incurred in the normal course
of business and indebtedness to Lender contemplated by this Agreement, create,
incur or assume indebtedness for borrowed money, including capital leases, (2)
sell, transfer, mortgage, assign, pledge, lease, grant a security interest in,
or encumber any of Borrower’s assets (except as allowed as Permitted Liens), or
(3) sell with recourse any of Borrower’s accounts, except to Lender.
 
Loans, Acquisitions and Guaranties.  (1) Loan, invest in, or advance money or
assets to any other person, enterprise, or entity, (2) purchase, create, or
acquire any interest in any other enterprise or entity, or (3) incur any
obligation as surety or guarantor.
 
CESSATION OF ADVANCES.  If Lender has made any commitment to make any Loan or
Loan Advance to Borrower, whether under this Agreement or under any other
agreement, Lender shall have no obligation to make Loan Advances or to disburse
Loan proceeds if:  (A) Borrower or any Guarantor is in default under the terms
of this Agreement or any of the Related Documents or any other agreement that
Borrower or any Guarantor has with Lender; (B) Borrower or any Guarantor becomes
insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged
a bankrupt; (C) there occurs a material adverse change in Borrower’s financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; or (D) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor’s guaranty of the Loan or any
other loan with Lender; or (E) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.

RIGHT OF SETOFF.  To the extent permitted by applicable law, Lender reserves a
right of setoff in all Borrower’s and Guarantors’ accounts with Lender (whether
checking, savings, or some other account).  This includes all accounts Borrower
or either of the Guarantors holds jointly with someone else and all accounts
Borrower may open in the future.  Borrower authorizes Lender, to the extent
permitted by applicable law, to charge or setoff all sums owing on the
Indebtedness against any and all such accounts, and, at Lender’s option, to
administratively freeze all such accounts to allow Lender to protect Lender’s
charge and setoff rights provided in this paragraph.

DEFAULT.  Each of the following shall constitute an Event of Default under this
Agreement:

Adverse Change.  A material adverse change occurs in Borrower’s or either
Guarantor’s financial condition, or Lender believes the prospect of payment or
performance of any of the Loans is impaired.

 
- 9 -

--------------------------------------------------------------------------------

 

Business Loan Agreement (Continued)
Loan No. ___________________

 
Creditor or Forfeiture Proceedings.  Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower or by any governmental agency against
any collateral securing the Loan.  This includes a garnishment of any of
Borrower’s accounts, including deposit accounts, with Lender.  However, this
Event of Default shall not apply if there is a good faith dispute by Borrower as
to the validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Borrower gives Lender written notice of
the creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount determined
by Lender, in its sole discretion, as being an adequate reserve or bond for the
dispute.
 
Dissolution or Insolvency.  The dissolution of Borrower or either Guarantor
(regardless of whether election to continue is made) or any other termination of
Borrower’s or either Guarantor’s existence as a going business, the insolvency
of Borrower or either Guarantor, the appointment of a receiver for any part of
Borrower’s or either Guarantor’s property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any proceeding
under any bankruptcy or insolvency laws by or against Borrower or either
Guarantor.
 
Default in Favor of Third Parties.  Borrower or any Guarantor defaults under any
loan, extension of credit, security agreement, purchase or sales agreement, or
any other agreement, in favor of any other creditor or person that may
materially affect any of Borrower’s or any Guarantor’s property or Borrower’s or
any Guarantor’s ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
 
Defective Collateralization.  This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
document to create a valid and perfected security interest or lien) at any time
and for any reason.
 
Events Affecting Guarantors.  Any of the preceding events occurs with respect to
any Guarantor of any of the Indebtedness or any Guarantor revokes or disputes
the validity of, or liability under, any Guaranty of the Indebtedness.
 
False Statements.  Any warranty, representation or statement made or furnished
to Lender by Borrower or the Guarantors or on Borrower’s behalf under this
Agreement or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished or becomes false or
misleading at any time thereafter.
 
Insecurity.  Lender in good faith deems itself insecure and allows Borrower a
Right to Cure as described below.
 
Other Defaults.  Borrower or either Guarantor fails to comply with or to perform
any other term, obligation, covenant or condition contained in this Agreement or
in any of the Related Documents or to comply with or to perform any term,
obligation, covenant or condition contained in any other agreement with Lender.
 
Payment Default.  Borrower or Guarantors fail to make any payment when due under
the Loans.

 
- 10 -

--------------------------------------------------------------------------------

 

Business Loan Agreement (Continued)
Loan No. ___________________

 
Right to Cure.  If any default, other than a payment default, is curable and if
Borrower or either Guarantor, as the case may be, has not been given a notice of
similar default within the preceding twelve (12) months, it may be cured if
Borrower or a Guarantor, as the case may be, after receiving written notice from
Lender demanding cure of such default:  (1) cure the default within twenty (20)
days; or (2) if the cure requires more than twenty (20) days, immediately
initiates steps which Lender deems in Lender’s sole discretion to be sufficient
to cure the default and thereafter continue and complete all reasonable and
necessary steps sufficient to produce compliance as soon as reasonably
practical.
 
EFFECT OF AN EVENT OF DEFAULT.  If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make further Loan Advances or disbursements), and, at Lender’s
option, all Indebtedness immediately will become due and payable, all without
notice of any kind to Borrower or Guarantors, except that in the case of an
Event of Default of the type described in the “Insolvency” subsection above,
such acceleration shall be automatic and not optional.  In addition, Lender
shall have all the rights and remedies provided in the Related Documents or
available at law, in equity, or otherwise.  Except as may be prohibited by
applicable law, all of Lender’s rights and remedies shall be cumulative and may
be exercised singularly or concurrently.  Election by Lender to pursue any
remedy shall not exclude pursuit of any other remedy, and an election to make
expenditures or to take action to perform an obligation of Borrower or of any
Guarantor shall not affect Lender’s right to declare a default and to exercise
its rights and remedies.

MISCELLANEOUS PROVISIONS.  The following miscellaneous provisions are a part of
this Agreement.

Amendments.  This Agreement, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Agreement.  No alteration of or amendment to this Agreement or any
Related Document shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or amendment.
 
Attorneys’ Fees; Expenses.  Borrower agrees to pay upon demand all of Lender’s
costs and expenses, including Lender’s attorneys’ fees and Lender’s legal
expenses, incurred in connection with the enforcement of this Agreement.  Lender
may hire or pay someone else to help enforce this Agreement, and Borrower shall
pay the costs and expenses of such enforcement.  Costs and expenses include
Lender’s attorneys’ fees and legal expenses, whether or not there is a lawsuit,
including attorneys’ fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post judgment collection services.
 
Caption Headings.  Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.

 
- 11 -

--------------------------------------------------------------------------------

 

Business Loan Agreement (Continued)
Loan No. ___________________

 
Choice of Venue.  If there is a lawsuit related to this Agreement or the Loans,
Borrower agrees to submit to the personal jurisdiction of the courts of Polk
County, State of Iowa.
 
Consent to Loan Participation.  Borrower agrees and consents to Lender’s sale or
transfer, whether now or later, of one or more participation interests in the
Loans to one or more purchasers, whether related or unrelated to Lender.  Lender
may provide, without any limitation whatsoever, to any one or more purchasers,
or potential purchasers, any information or knowledge Lender may have about
Borrower or Guarantors or about any other matter relating to the Loan, and
Borrower hereby waives any rights to privacy Borrower or Guarantors may have
with respect to such matters.  Borrower additionally waives any and all notices
of sale of participation interests, as well as all notices of any repurchase of
such participation interests.  Borrower also agrees that the purchasers of any
such participation interests will be considered as the absolute owners of such
interests in the Loan and will have all the rights granted under the
participation agreement or agreements governing the sale of such participation
interests.  Borrower further waives all rights of offset or counterclaim that it
may have now or later against Lender or against any purchaser of such a
participation interest and unconditionally agrees that either Lender or such
purchaser may enforce Borrower’s obligation under the Loan irrespective of the
failure or insolvency of any holder of any interest in the Loan.  Borrower
further agrees that the purchaser of any such participation interests may
enforce its interests irrespective of any personal claims or defenses that
Borrower may have against Lender.
 
Governing Law.  This Agreement will be governed by federal law applicable to
Lender and, to the extent not preempted by federal law, the laws of the State of
Iowa without regard to its conflicts of law provisions.  This Agreement has been
accepted by Lender in Polk County, Iowa.
 
No Waiver by Lender.  Lender shall not be deemed to have waived any rights under
this Agreement unless such wavier is given in writing and signed by Lender.  No
delay or omission on the part of Lender in exercising any right shall operate as
a waiver of such right or any other right.  A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender’s right
otherwise to demand strict compliance with that provision or any other provision
of this Agreement.  No prior waiver by Lender, nor any course of dealing between
Lender and Borrower, or between Lender and any Grantor, shall constitute a
waiver of any of Lender’s rights or of any of Borrower’s or any grantor’s
obligations as to any future transactions.  Whenever the consent of Lender is
required under this Agreement, the granting of such consent by Lender in any
instance shall not constitute continuing consent to subsequent instances where
such consent is required and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
 
Notices.  Any notice required to be given under this Agreement shall be given in
writing, and shall be effective when actually delivered, when actually received
by telefacsimile or email (unless otherwise required by law), when deposited
with a nationally recognized overnight courier, or, if mailed, when deposited in
the United States mail, as first class, certified or registered mail postage
prepaid, directed to the addresses shown near the beginning of this
Agreement.  Any party may change its address for notices under this Agreement by
giving formal written notice to the other parties, specifying that the purpose
of the notice is to change the party’s address.  For notice purposes, Borrower
agrees to keep Lender informed at all times of Borrower’s current
address.  Unless otherwise provided or required by law, if there is more than
one Borrower, any notice given by Lender to any Borrower is deemed to be notice
given to all Borrowers.

 
- 12 -

--------------------------------------------------------------------------------

 

Business Loan Agreement (Continued)
Loan No. ___________________

 
Severability.  If a court of competent jurisdiction finds any provision of this
Agreement to be illegal, invalid, or unenforceable as to any circumstance, that
finding shall not make the offending provision illegal, invalid, or
unenforceable as to any other circumstance.  If feasible, the offending
provision shall be considered modified so that it becomes legal, valid and
enforceable.  If the offending provision cannot be so modified, it shall be
considered deleted from this Agreement.  Unless otherwise required by law, the
illegality, invalidity, or unenforceability of any provision of this Agreement
shall not affect the legality, validity or enforceability of any other provision
of this Agreement.
 
Successors and Assigns.  All covenants and agreements by or on behalf of
Borrower contained in this Agreement or any Related Documents shall bind
Borrower’s successors and assigns and shall inure to the benefit of Lender and
its successors and assigns.  Borrower shall not, however, have the right to
assign Borrower’s rights under this Agreement or any interest therein, without
the prior written consent of Lender.
 
Survival of Representations and Warranties.  Borrower understands and agrees
that in making the Loan, Lender is relying on all representations, warranties,
and covenants made by Borrower in this Agreement or in any certificate or other
instrument delivered by Borrower to Lender under this Agreement or the Related
Documents.  Borrower further agrees that regardless of any investigation made by
Lender, all such representations, warranties and covenants will survive the
making of the Loan and delivery to Lender of the Related Documents, shall be
continuing in nature, and shall remain in full force and effect until such time
as Borrower’s Indebtedness shall be paid in full, or until this Agreement shall
be terminated in the manner provided above, whichever is the last to occur.
 
Time is of the Essence.  Time is of the essence in the performance of this
Agreement.
 
DEFINITIONS.  The following capitalized words and terms shall have the following
meanings when used in this Agreement.  Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America.  Words and terms used in the singular shall
include the plural, and the plural shall include the singular, as the context
may require.  Words and terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial
Code.  Accounting words and terms not otherwise defined in this Agreement shall
have the meanings assigned to them in accordance with generally accepted
accounting principles as in effect on the date of this Agreement:

Advance.  The word “Advance” means a disbursement of Loan funds made, or to be
made, to Borrower or on Borrower’s behalf on a line of credit or multiple
advance basis under the terms and conditions of this Agreement or any Related
Document.

 
- 13 -

--------------------------------------------------------------------------------

 

Business Loan Agreement (Continued)
Loan No. ___________________

 
Agreement.  The word “Agreement” means this Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time, together
with all exhibits and schedules attached to this Business Loan Agreement from
time to time.
 
Borrower.  The word “Borrower” means Art’s-Way Manufacturing Co., Inc. and
includes all co-signers and co-makers signing the Note and all their successors
and assigns.  In addition, to the extent the context of any provisions of this
Agreement makes it appropriate, including without limitation any representation,
warranty, or covenant, the word “Borrower” as used in this Agreement shall
include all of Borrower’s subsidiaries and affiliates.  Notwithstanding the
foregoing however, under no circumstances shall this Agreement be construed to
require Lender to make any Loan or other financial accommodation to any of
Borrower’s subsidiaries or affiliates.
 
Collateral.  The word “Collateral” means all property and assets granted as
collateral security for a Loan, whether real or personal property, whether
granted directly or indirectly, whether granted now or in the future, and
whether granted in the form of a security interest, mortgage, collateral
mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage,
collateral chattel mortgage, chattel trust, factor’s lien, equipment trust,
conditional sale, trust receipt, lien, charge, lien or title retention contract,
lease or consignment intended as a security device, or any other security or
lien interest whatsoever, whether created by law, contract, or otherwise.
 
Environmental Laws.  The words “Environmental Laws” mean any and all state,
federal and local statutes, regulations and ordinances relating to the
protection of human health or the environment, including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, 42 U.S.C. Section 9601, et seq. (“CERCLA”), the Superfund Amendments
and Reauthorization Act of 1986, Pub. L. No. 99-499 (“SARA”), the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other
applicable state or federal laws, rules, or regulations adopted pursuant
thereto.
 
Event of Default.  The words “Event of Default” mean any of the events of
default set forth in this Agreement in the default section of this Agreement.
 
GAAP.  The word “GAAP” means generally accepted accounting principles.
 
Guarantor.  The word “Guarantor” means any guarantor, surety, or accommodation
party of any or all of the Loans, including specifically Art’s-Way Vessels, Inc.
and Art’s-Way Scientific, Inc.
 
Guaranty.  The word “Guaranty” means the guaranty from Guarantor to Lender,
including without limitation a guaranty of all or part of the Note.

 
- 14 -

--------------------------------------------------------------------------------

 

Business Loan Agreement (Continued)
Loan No. ___________________

 
Hazardous Substances.  The words “Hazardous Substances” mean materials that,
because of their quantity, concentration or physical, chemical or infectious
characteristics, may cause or pose a present or potential hazard to human health
or the environment when improperly used, treated, stored, disposed of,
generated, manufactured, transported or otherwise handled.  The words “Hazardous
Substances” are used in their very broadest sense and include without limitation
any and all hazardous or toxic substances, materials or waste as defined by or
listed under the Environmental Laws.  The term “Hazardous Substances” also
includes, without limitation, petroleum and petroleum by-products or any
fraction thereof and asbestos.
 
Indebtedness.  The word “Indebtedness” means the indebtedness evidenced by the
Note or Related Documents, including all principal and interest together with
all other indebtedness and costs and expenses for which Borrower and Guarantors
are responsible under this Agreement or under any of the Related Documents.
 
Lender.  The word “Lender” means West Bank, its successors and assigns.
 
Loan.  The word “Loan” means any and all loans and financial accommodations from
Lender to Borrower or Guarantors whether now or hereafter existing, and however
evidenced, including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
 
Note.  The word “Note” means the promissory note executed by Borrower in the
principal amount of $6,000,000 dated on or about the date of this Agreement,
together with all renewals of, extension of, modifications of, refinancings of,
consolidations of, and substitutions for the note or credit agreement.
 
Permitted Liens.  The words “Permitted Liens” mean (1) liens and security
interests securing Indebtedness owed by Borrower to Lender; (2) liens for taxes,
assessments, or similar charges either not yet due or being contested in good
faith; (3) liens of materialmen, mechanics, warehousemen, or carriers, or other
like liens arising in the ordinary course of business and securing obligations
which are not yet delinquent; (4) purchase money liens or purchase money
security interests upon or in any property acquired or held by Borrower in the
ordinary course of business to secure Indebtedness outstanding on the date of
this Agreement or permitted to be incurred under the paragraph of this Agreement
titled “Indebtedness and Liens”; (5) liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the Lender in
writing; and (6) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to the
net value of Borrower’s assets.
 
Related Documents.  The words “Related Documents” mean all promissory notes,
credit agreements, loan agreements, environmental agreements, guaranties,
security agreements, mortgages, deeds of trust, security deeds, collateral
mortgages, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Loan, the Loans, or this
Agreement, all in form satisfactory to Lender and Lender’s Counsel.
 
Security Agreement.  The words “Security Agreement” mean and include without
limitation any agreements, promises, covenants, arrangements, understandings or
other agreements, whether created by law, contract, or otherwise, evidencing,
governing, representing, or creating a Security Interest.

 
- 15 -

--------------------------------------------------------------------------------

 

Business Loan Agreement (Continued)
Loan No. ___________________

 
Security Interest.  The words “Security Interest” mean, without limitation, any
and all types of collateral security, present and future, whether in the form of
a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment,
pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel
trust, factor’s lien, equipment trust, conditional sale, trust receipt, lien or
title retention contract, lease or consignment intended as a security device, or
any other security or lien interest whatsoever whether created by law, contract,
or otherwise.
 
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT AND BORROWER AGREES TO ITS TERMS.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS BUSINESS LOAN
AGREEMENT AND ALL OTHER DOCUMENTS RELATING TO THIS DEBT.
 
BORROWER:
 
LENDER:
     
ART’S-WAY MANUFACTURING CO., INC.
 
WEST BANK
         
By:
/s/ J. Ward McConnell, Jr.
 
By:
/s/ Kevin J. Smith
 
J. Ward McConnell, Jr.
   
Kevin J. Smith
 
Chairman
   
Senior Vice President
         
By:
/s/ Carrie Majeski
       
Carrie Majeski
       
President
     

 
 
- 16 -

--------------------------------------------------------------------------------