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