STOCK APPRECIATION RIGHTS

The board of directors of Torotel approved the Directors Stock Appreciation Rights Plan (the "Plan") for non-employee directors in September 2004. This plan was filed as Exhibit 10.4 of the form 10-QSB for the quarter ended October 31, 2004.

Each SAR granted as a part of the plan may be exercised to the extent that the Grantee is vested in such SAR. The SARs will vest according to the following schedule:



Number of Years the Grantee has remained a Torotel director following the Date of Grant	Shares represented by a SAR in which a Grantee is Vested
Under one	—	%
At least one but less than two	33	%
At least two but less than three	67	%
Three or more	100	%

A Grantee shall become fully vested in each of his or her SARs under the following circumstances: (i) upon termination of the Grantee's service as a director of Torotel for reasons of death, disability or retirement; (ii) if the Compensation and Nominating Committee (the "Committee"), in its sole discretion, determines that acceleration of the SAR vesting schedule would be desirable for Torotel; or (iii) if Torotel shall, pursuant to action by its Board of Directors, at any time propose to merge into, consolidate with, or sell or otherwise transfer all or substantially all of its assets to another corporation, and provision is not made pursuant to the terms of such transaction for the assumption by the surviving, resulting or acquiring corporation of outstanding SARs or for substitution of new SARs therefore, the Committee shall cause written notice of the proposed transaction to be given to each Grantee not less than twenty days prior to the anticipated effective date of the proposed transaction, and his or her SARs shall become fully vested and, prior to a date specified in such notice, which shall be not more than ten days prior to the anticipated effective date of the proposed transaction, each Grantee shall have the right to exercise his or her SARs.

In accordance with ASC 718, compensation expense is recognized over the vesting period based upon the estimated fair value of the SARs pursuant to the terms of the Plan using the Black-Scholes options-pricing model as of the end of each financial reporting period. The stock volatility rate was determined using the historical volatility rates of our common stock based on the weekly closing price of our stock. The expected life represents the actual life as well as the use of the simplified method prescribed by the SEC, which uses the average of the vesting period and expiration period of each group of SARs. The interest rates used were the government Treasury bill rate on the date of valuation. Dividend yield was based on the historical policy that we have not issued any form of dividend since 1985.

SARs transactions for each period though January 31 are summarized as follows:



	2013			2012
	SARs Under Option	Weighted Average Grant Price		SARs Under Option	Weighted Average Grant Price
Outstanding at beginning of period	280,000	$	0.429	240,000	$	0.407
Granted	40,000	$	0.270	40,000	$	0.558
Exercised	—	$	—	—	$	—
Forfeited	—	$	—	—	$	—
Outstanding at end of period	320,000	$	0.409	280,000	$	0.421
SARs exercisable at end of period	243,300	$	0.419	210,000	$	0.426
Weighted average fair value of SARs granted during the period		$	0.270		$	0.374

The following information applies to SARs outstanding for each period through January 31:



	2013			2012
Number outstanding	320,000			280,000
Range of grant prices, upper limit	$	0.695		$	0.695
Range of grant prices, lower limit	$	0.208		$	0.208
Weighted average grant price	$	0.409		$	0.421
Weighted average contractual life remaining (in years)	5.10			5.53
10-day average market price	$	0.530		$	0.400
Weighted average stock volatility	148.76		%	132.96		%
Weighted average expected life	4.60			5.11
Weighted average risk free rate	0.80		%	0.89		%
Weighted average dividend yield	—		%	—		%
Weighted average fair value price	$	0.498		$	0.374
Aggregate fair value	$	110,000		$	75,000
Aggregate intrinsic value	$	33,000		$	19,000
Total compensation expense (credit) for three months ended January 31	$	63,000		$	(6,000	)
Total compensation expense (credit) for nine months ended January 31	$	72,000		$	(5,000	)
Unrecognized compensation expense related to non-vested SARs granted	$	24,000		$	17,000
Expected period to recognize compensation expense related to non-vested SARs granted (in years)	1.87			2.00
Total liability for SARs on consolidated balance sheets	$	124,000		$	75,000